REG - abrdn China Inv.Co. - Final Results
14/02/2023 07:00
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RNS Number : 7894P abrdn China Investment Company Ltd. 14 February 2023
abrdn China Investment
Company Limited
LEI: 213800RIA1NX8DP4P938
Seeking long-term capital growth by investing predominantly in Chinese
equities
Annual Report
31 October 2022
Visit our Website
To find out more about abrdn China Investment Company Limited, please visit
abrdnchina.co.uk
abrdn China Investment Company Limited is a closed-end investment company with
its Ordinary shares listed on the Premium Segment of the London Stock
Exchange.
The Company's name, objective and investment policy were changed following
approval by shareholders at an Extraordinary General Meeting on 26 October
2021, and in November 2021 the Company completed its combination with Aberdeen
New Thai Investment Trust PLC.
The Company seeks to produce long-term capital growth by investing
predominantly in Chinese equities.
Financial Information
Financial Position as at 31 October 2022
NAV per Ordinary share(2) Ordinary share price - mid market Discount(3)
512.0p 448.0p 12.5%
2021 813.2p 2021 695.0p 2021 14.5%
Net Assets Gearing - Net (cash) / debt(3) Dividend yield
£231.8m -3.6% 0.7%
2021 £373.8m 2021 -70.0% 2021 2.5%
Performance for the Financial Year ended 31 October 2022
Net asset value ("NAV") per Ordinary share price total return(1,3,4) MSCI China All Shares Index Net
Ordinary share total return(1,3,4)
Total Return in sterling terms
-37.0% -35.5% -31.5%
2021 19.8% 2021 18.7% 2021 10.7%
Revenue return per Ordinary share Ongoing charges ratio ('OCR')(3) Dividend per Ordinary share declared
in respect of the Financial Year
4.0p 0.60% 3.2p
2021 -0.61p 2021 0.98% 2021 17.25p
(1 ) Performance figures stated above include reinvestment of dividends
on the ex-date.
(2 ) See note 14 in the Notes to these Financial Statements for basis of
calculation.
(3 ) Definitions of these Alternative Performance Measures ('APMs')
together with how these have been calculated can be found further below.
(4 ) The Company's 2021 performance was attributable to the fund being
managed in accordance with its previous investment objective, which was to
achieve consistent returns for shareholders in excess of the MSCI Emerging
Markets Net Total Return Index in sterling terms and the new investment
objective, following approval by shareholders at the EGM on 26 October 2021,
which is to produce long-term capital growth by investing predominantly in
Chinese equities.
Financial Calendar
"October 2022 marked the first anniversary of our shareholders approving the Financial Calendar
Company's change of mandate, shifting from investing in a wide range of
emerging market funds to concentrating on the compelling opportunities offered Online Shareholder Presentation 30 March 2023
by Chinese equities. While this first Financial Year has seen some extremely
challenging conditions, the Board believes that the long-term growth prospects
for Chinese companies, which drove our proposal to change the Company's Annual General Meeting ("AGM") (London) 13 April 2023
mandate, remain as compelling as ever. The performance of the portfolio and
Chinese equity markets since the end of the Financial Year would appear to
bear this out." Half year end 30 April 2023
Announcement of June 2023
Half-Yearly Financial Report for the six months ending 30 April 2023
Financial year end 31 October 2023
Announcement of Annual Report and Accounts for the year ending 31 October January / February 2024
2023
Helen Green, Chairman
Chairman's Statement
Overview commitment to its zero-Covid policy, which limited the reopening of the local
economy; secondly, the travails of the country's heavily indebted real estate
It is my pleasure to report to you for the first time as Chairman of the Board sector; and, thirdly, reaction to General Secretary Xi Jinping securing an
in what has been a hugely significant financial year to 31 October 2022 (the unprecedented third term as China's leader at the 20(th) Communist Party
"Financial Year") for abrdn China Investment Company Limited ("the Company" or Congress.
"ACIC").
The Company's underperformance during the Financial Year should be considered
October 2022 marked the first anniversary of our shareholders approving the against the challenging market backdrop.
Company's change of mandate, shifting from investing in a wide range of
emerging market funds to concentrating on the compelling opportunities offered ACIC's lack of exposure to energy companies hindered performance. Energy was
by Chinese equities. While this first Financial Year has seen some extremely the only sector at a market level to rise during the Financial Year, led by
challenging conditions, the Board believes that the long-term growth prospects the surge in oil and gas prices. However, with the Chinese energy sector
for Chinese companies, which drove our proposal to change the Company's dominated by state-owned oil and gas companies, ACIC's Investment Manager
mandate, remain as compelling as ever. The performance of the portfolio and believes it is difficult to find quality companies in this sector that will
Chinese equity markets since the end of the Financial Year would appear to perform well over the long-term.
bear this out.
Stock selection in the financial sector also weighed on returns, as a number
In his last report to shareholders, my predecessor, Mark Hadsley-Chaplin who of the Company's bank holdings underperformed.
retired on 1 August 2022, commented that investors in Chinese equities were
largely ignoring company fundamentals, with share prices being heavily On a brighter note, there was positive news from some of ACIC's consumer
influenced by macroeconomic and geopolitical risks. This trend continued holdings, which benefited from increased consumption of domestic brands over
during the Financial Year and led to a general rotation from growth to value imported goods.
stocks, forcing share prices downwards. The Company's net asset value (NAV)
total return for the Financial Year was -37.0%, while the share price total ACIC's Investment Manager responded to the challenging conditions during the
return was -35.5%. This compares with the total return of the MSCI China All Financial Year to mitigate short-term volatility. One such step was to reduce
Shares Index of -31.5% in Sterling terms. However, since the end of the the underweight gap in value stocks, as the market style rotated from growth
Financial Year, the China re-opening trade has been positive and markets have to value, adding to our holdings in more defensive sectors, while still
rallied significantly. maintaining exposure to the portfolio's five core themes: aspiration,
digitalisation, going green, health and wealth. These are set out in more
There were a number of macro geopolitical and economic factors which had a detail in the Investment Manager's Report, along with additional commentary on
significant negative influence on the performance of Chinese equities during portfolio performance and activity.
the Financial Year- war in Ukraine, an energy crisis, soaring commodity prices
and global inflation, which led to rising interest rates and fears of a Dividends
worldwide recession. The ongoing tensions with the US, and the performance of
the US dollar, compounded the challenges for Chinese equities. Markets During the Financial Year, the Board revised ACIC's dividend policy so that a
continue to be extremely sensitive to any flare-ups between the two economic sufficient proportion of income delivered by the portfolio is paid out in
superpowers. Consequently, verbal sparring over Taiwan, the delisting of dividends to Shareholders, thus enabling the Company to maintain its
Chinese American Depositary Receipts (ADRs) and potential sanctions (such as investment trust status.
the Biden administration's block on sales of American semiconductors to China
announced in October) all added to volatility in Chinese stock markets. At the end of the Financial Year, the revenue and profitability of the Company
was such that the Board is declaring an interim dividend in respect of the
Locally, three major domestic factors negatively affected share prices during Financial Year ended 31 October 2022 of 3.2p per Ordinary share which will be
the Financial Year: firstly, China's continued payable to Shareholders on 17 March 2023 with an associated ex-dividend date
of 23 February 2023.
Loan Facility and Gearing
On 13 April 2022, the Company signed an agreement with the Industrial and
Commercial Bank of China (ICBC) for a
new two year revolving credit facility. The facility provides ACIC with £15 Between 9 November 2021 and 31 October 2022, ACIC bought back 1,341,251 shares
million of borrowings, along with an option to increase the level of the or 2.9% of the share capital in issue at a cost of £7.55 million and a
commitment by a further £15 million, drawable in Sterling or Chinese Yuan. weighted average discount of 12.6%. This enhanced the Company's NAV by 0.35%.
Since the Financial Year end, the Company has bought back a further 1,268,709
At the Financial Year end the facility was unused. However, in December 2022 shares or 2.8% of the share capital in issue at the Financial Year end at a
and late January 2023, the Investment Manager drew down CNH 106m (£12.7m) in cost of £7.0 million and a weighted average discount of 14.4%. This enhanced
two tranches. These funds provide the investment team with additional capacity the Company's NAV by 0.4%.
to purchase quality, high conviction target companies and to fund investment
in markets to which the Company gained access as part of its Qualified Foreign Investment Trust status
Investor licence.
Following the merger with New Thai, the Board was pleased to announce that
Discount and buy backs ACIC had been granted approval by HMRC to be classified as an investment trust
under Chapter 4 of Part 24 CTA 2010 and Chapter 1 of Part 2 of The Investment
During the Financial Year, the Board closely monitored the Company's share Trust Tax Regulations. As a result, the Company became an investment trust
price discount to NAV. The Board's intention is that ACIC's shares should not with effect from 9 November 2021 and is registered in the United Kingdom for
trade at a price which, on average, represents a discount that is out of line tax purposes. This means that, in respect of each accounting period for which
with its direct peer group over the long-term. ACIC is approved by HMRC as an investment trust, ACIC will be exempt from UK
taxation on its chargeable gains. Income arising from overseas investments is
The Board seeks authority from Shareholders annually to buy back shares to subject to foreign withholding taxes at varying rates, however, like other
assist the management of the discount. investment trusts, the Company seeks to make use of double taxation relief
where available. The Company is still liable to pay UK corporation tax on its
Shares may be repurchased when, in the opinion of the Board, and taking into net income in the normal way but should, in practice, be exempt from UK
account factors such as market conditions and the discounts of comparable corporation tax on dividend income received, provided that such dividends
companies, the Company's discount is out of line with ACIC's direct peers and (whether from UK or non-UK companies) fall within one of the "exempt classes"
shares are available to purchase in the market. The Board believes that the in Part 9A of the Corporation Tax Act 2009.
principal purpose of share repurchases is to enhance the NAV for remaining
shareholders, although it may also assist in addressing the imbalance between Qualified Foreign Investor approval
the supply of and demand ACIC's shares and thereby reduce the scale and
volatility of the discount at which the shares trade in relation to the On 19 December 2022, ACIC announced that it had completed the process and had
underlying NAV. received regulatory approval for a Qualified Foreign Investor ("QFI") licence.
The QFI scheme provides the Company with access to a broader investible
At the beginning of the Financial Year, and as part of the merger with universe of Chinese equities, including access to stocks listed on the
Aberdeen New Thai Investment Trust plc (New Thai), the Company invited all Shanghai Stock Exchange STAR Market ("STAR"), and at the same time grants the
shareholders to participate in a tender offer pursuant to which the Company Company more flexibility to trade onshore equities approaching Foreign
would buy back up to 15% of the Ordinary shares in issue at a 2% discount to Ownership Limits under the Stock Connect programme.
NAV. Shareholders tendered 6,894,773 Ordinary shares in response to the offer
and the Company bought back those shares into treasury at a price of 801.92p Management Team
per share. Simultaneously, the Company issued 7,554,440 new Ordinary shares to
the shareholders of New Thai who had elected to roll their shareholding into Following the change of the Company's investment mandate, Nicholas Yeo and
ACIC. Following the completion of the Scheme of Arrangement on 9 November Elizabeth Kwik were appointed to lead ACIC's Investment Management Team on 26
2021, the number of Ordinary shares in issue was 46,624,826. October 2021. They manage ACIC's portfolio from Hong Kong and Shanghai, where
the 13 strong Chinese equities team is based. The Board met members of the
team, virtually, prior to appointment and was impressed by them and their
track record.
On the change of the Company's investment mandate, Bernard Moody and Andrew ACIC's Board takes its responsibilities very seriously, and regularly
Lister ceased to be involved in the day-to-day running of the portfolio. On considers succession planning, and I am delighted to be working with the
behalf of the Board, I would like to thank Bernard, Andrew and the abrdn refreshed Board and look forward to building upon our successes.
Closed End Fund Strategies team who have done an excellent job of managing the
Company's portfolio. The Board is developing plans to visit China, and the investment team in 2023,
and I hope to be able to report on a successful trip in the next Annual
The change of mandate and management team was not in any way a reflection of Report.
the service that they provided, and the Board and I wish them the very best.
Online Investor Presentation
Change of Company Secretary, Administrator, Depositary and Custodian
In order to encourage as much interaction as possible with our shareholders, I
will be hosting an Online Investor Presentation at 11:00am on Thursday, 30
March 2023. At this event, there will also be an update from Elizabeth Kwik,
Following the end of the Financial Year, ACIC has signed agreements with abrdn Portfolio Manager, followed by an opportunity to ask live questions of
plc and various entities within BNP Paribas S.A. ("BNPP") to take on various Elizabeth and me. The online presentation is being held ahead of the AGM to
functions in due course. BNPP will become ACIC's administrator and provide allow shareholder sufficient time to submit their proxy votes after the
custody and depositary services. abrdn will take on Company Secretarial presentation but prior to the AGM should they so wish. Full details on how to
responsibilities. An announcement will be made when the transfer process has register for the online event can be found on ACIC's website abrdnchina.co.uk.
been completed.
Annual General Meeting ("AGM")
Board Composition
The Company's AGM will be held at 12 noon on 13 April 2023 at Wallacespace
There have been some significant changes to the Board during the Financial Spitalfields, 15-25 Artillery Lane, London, E1 7HA. The Board is delighted
Year. that Elizabeth Kwik will be travelling from Hong Kong to present an update on
ACIC and meet with shareholders in person at the AGM and we encourage
Anne Gilding and Sarah MacAulay joined the Board as Directors in November shareholders to attend.
2021, both of whom had previously been directors of New Thai.
In advance of the AGM, we would request that you complete and return the proxy
William Collins retired as a Director of the Company on 12 April 2022, having form enclosed with the Annual Report so as to ensure that your votes are
served on the Board for ten years, and Mark Hadsley-Chaplin retired as represented at the meeting. If you hold your shares in the Company via a
Chairman and a Director on 1 August 2022, having served for more than nine share plan or a platform and would like to attend and/or vote at the AGM, you
years. On behalf of the Board, I would like to record my thanks to them both, will need to make arrangements with the administrator of your share plan or
and particularly Mark for his efforts in steering the Company through its platform. For this purpose, investors who hold their shares in the Company via
change of mandate. the abrdn Investments Plan for Children, Share Plan or ISA will find a Letter
of Direction enclosed. Shareholders are encouraged to complete and return the
I was honoured to be asked by my other Board colleagues to assume the role of Letter of Direction in accordance with the instructions. The Notice of the
Chairman on 1 August 2022 when the Board also appointed Sarah MacAulay as Meeting is contained in the Annual Report for the Financial Year ended 31
Senior Independent Director. October 2022.
Lastly, the Board welcomed Mark Bridgeman to the Board on 1 August 2022 and Outlook
as my successor as Chairman of the Audit Committee. Mark brings a wealth of
experience in the investment sector. He will stand for election to the Board The last 12 months have been particularly challenging for investors in Chinese
at the AGM in April 2023. equities. We saw the Hang Seng Index in Hong Kong bottom out below 15,000,
touching levels not seen since the aftermath of the Global Financial Crisis in
2008. Markets reacted positively to the announcements of the easing
of Covid restrictions in China to the point where the NAV Total Return of the
Company in the first three months of the current financial year was almost
40%. This is, admittedly, following the heavily negative numbers, but it does
highlight how much interest there is in China, interest that we believe is
well-founded. The Board remains confident that any short-term headwinds that
we may encounter in future will be strongly outweighed by long-term positive
fundamentals and the compelling opportunities to invest in quality Chinese
companies.
We consider that the actions that the Chinese government has taken in the last
three months should not be seen as temporary and that, even if the uptick in
domestic travel over Chinese New Year does lead to an increase in the number
of people falling ill, there is little appetite for further draconian
lockdowns such as we witnessed in late 2022, culminating in the tragic fire in
Xinjiang. The return to the long-term trends of rising levels of urbanisation
and the increase in the disposable incomes that the ever-expanding middle
classes are able to deploy provides a ready market for high-quality goods and
services.
The Board believes the portfolio is well positioned to capture China's
long-term growth potential and is pleased to note the recent performance of
the Chinese equities market since the end of the Financial Year. With a focus
on these core themes, ACIC's Board believes that the portfolio comprises
high-quality companies representing the finest structural growth opportunities
in China, and arguably some of the most attractive areas of growth available
anywhere to investors.
Helen Green
Chairman
13 February 2023
Strategic Report
We see the brightest future for companies able to adapt to changing regulatory
frameworks and align with policy objectives in areas such as digital
innovation, green technology, access to affordable healthcare and improved
livelihoods. We are focused on these themes that we believe will drive returns
in 2023 and beyond.
Investment Manager's Report
Market Environment Some of the Company's bank holdings were among the worst detractors over the
period. Furthermore, regulatory tightening in the technology and e-commerce
At the start of the Financial Year, optimism towards Chinese stock markets was sectors also hindered performance during the Financial Year.
high. Facing rising inflation, Western economies were entering a tougher
policy environment likely to hamper progress in their stock markets. Geopolitics also played a role in the country's weak stock market performance.
Meanwhile, China stood out as a potential counter-cyclical recovery play, Tensions with the US over key technologies and Taiwan, including a contentious
supported by the country's modest stock market valuations, low inflation rate visit by the US Speaker of the House of Representatives that saw China react
and expansionary monetary policy. with high-profile military drills, added to the list of issues facing Chinese
investors.
Unfortunately, this optimism was not matched by the subsequent reality: the
Company's Reference Index, the MSCI China All Shares Index, fell 31.5% in Towards the end of the Financial Year, Chinese stock markets fell further
sterling terms over the Financial Year. Chinese stock markets endured an after investors were disappointed by the outcome of October's 20th Communist
arduous period in what also proved to be a turbulent time for global financial Party Congress. Markets reacted warily to the strengthening of President Xi's
markets and the world economy. However, unlike the major Western economies, position after his re-election, although they have since responded positively
buffeted by inflation and rising interest rates, China experienced a mixture following the weakening of the previously announced continuation of the
of specific domestic and external challenges that caused its economy to zero-Covid strategy.
stumble and its stock markets to fall heavily. These pressures were compounded
by the difficult global economic backdrop. Investment Themes
Central to the country's domestic challenges was the Chinese government's In constructing and managing the Company's portfolio, we employ a five-pronged
zero-Covid policy. This strict approach to containment of the Covid-19 virus thematic approach to identifying companies which we believe will deliver
proved economically disruptive, as major cities were locked down to stop the superior returns over the long-term. While this approach will not prevent us
spread of the virus. Recent months have seen an easing of restrictions and, from buying into a position where we see fundamental value, we would expect
crucially, increased efforts to boost vaccination rates and hospital capacity most of the holdings to benefit from one of the themes below:
that should allow the country to start to reopen. At the time of writing, they
have flocked to major airports, train stations and highways during the Lunar Aspiration: We expect consumer companies to fare well as China strives for a
New Year holidays. We expect a multi-stage recovery in China where domestic self-sufficient economic model.
consumption normalisation has a long runway ahead, supported by excess savings
among households and depressed valuations. Premiumisation - positioning goods and services as high-quality, in part to
gain pricing power - is an ugly word but a powerful consumer trend. We believe
Another domestic headwind came in the form of a slowdown in China's large and urbanisation and rising middle-class wealth will drive demand for premium
highly indebted property sector. The Chinese government's plans to reduce debt goods and services in the long-run.
in the real estate sector should be positive in the long-term, resulting in a
sector that is better regulated and less burdened by borrowing. The government Digital: This theme is aligned with the government's objectives of
is aware of the contagion risk from the real estate sector and has been localisation, improving productivity, lowering costs, increasing innovation
providing liquidity to the property sector through targeted measures, while and helping to propel economic growth. Our holdings in this segment are
still having the overarching objective of reducing the sector's excessive primarily software-related names. Chinese companies have historically
leverage. Nevertheless, the short-term reaction - including the refusal of performed strongly given their knowledge of the domestic market and preference
some citizens to pay their mortgages on properties they feared may never be for localisation in areas such as cybersecurity and cloud services.
built - was, at times, dramatic. The real estate crisis had a knock-on effect
across sectors during the Financial Year, particularly affecting banks, which Green: This theme is set to benefit from government policy on decarbonisation
have a large proportion of mortgages on their books. and net-zero emissions by 2060. China dominates global manufacturing capacity
for renewable energy and storage, accounting for 90% of solar and 75% of
battery capacity and is well positioned to benefit from the huge global sector dominated by state-owned enterprises that we do not view as long-term
investment required in renewable energy and electricity storage. Other structural winners. We own many renewable energy-related companies in the
industries also need to decarbonise, so we expect greater investment in portfolio, but these are classified within the industrials sector.
upgrading machinery and increasing energy efficiency. Our holdings include
solar wafer-producers, component-makers, battery and related component-makers Stock picking within financials accounted for almost half of overall
and automation-related firms. underperformance, with banks being a particular area of weakness. Stock
selection was also negative in the healthcare, and materials sectors, although
Health: This theme aligns with government policy objectives to make healthcare our stock choices in information technology and consumer staples contributed
cheaper and more accessible. This is particularly relevant in view of China's positively to overall returns.
rapidly ageing society. We are overweight in healthcare services, including
companies providing innovative research and clinical trial services that seek China Merchants Bank (CMB) was the portfolio's worst performing stock which
to bring high-quality therapies to market. suffered due to its property exposure, soft consumer confidence and an
unexpected change in senior management.
Wealth: This theme aligns with the government's objective of China becoming a
moderately prosperous society by 2035. The financial services sector plays a In the consumer discretionary sector, China MeiDong Auto, a vehicle dealer,
key role in creating and protecting wealth. Our holdings contribute to the struggled against a backdrop of subdued global demand for high-end cars.
creation of strong financial and capital markets, and also include software Elsewhere, CIFI Ever Sunshine, a property management company, was affected by
companies that support the development of capital markets, such as trading and the broader weakness in the property sector. We exited the stock during the
portfolio management. The adoption of insurance services remains low in China Financial Year.
relative to the rest of the world. We see a large potential market in terms of
life and health insurance, especially given China's ageing population. On a brighter note, Proya Cosmetics (see case study below) was a strong
contributor to performance. It grew its business over the Financial Year,
Portfolio Performance navigating lockdown effects and expanding in cities considered to be
"lower-tier" in the unofficial hierarchical classification of Chinese cities.
During the Financial Year, the Company's net asset value ("NAV") total return Owning medical equipment-maker Shenzhen Mindray was also helpful. China's
was -37.0%, underperforming the total return of the Reference Index. The difficulties in dealing with the Covid-19 pandemic have highlighted the need
Ordinary share price total return was -35.5%, as the discount to NAV at which to invest in domestic healthcare. Shenzhen Mindray also benefited from
the Company's shares trade narrowed to 12.5% from 14.5% at the start of the expectations of easing Covid-19 restrictions. Lastly, China Tourism Group Duty
Financial Year. The Company's shares are trading at an 13.5% discount at the Free, the travel retailer, recovered in line with the easing of the burdensome
time of writing. international travel requirements in China.
In terms of broad headwinds for the portfolio, it was a year when Portfolio Activity
macroeconomic and geopolitical concerns trumped bottom-up stock fundamentals.
The many positive developments at the individual company level within the Our commitment to rigour in our investment process assumed even greater
portfolio were often largely ignored by investors who were more concerned importance given the volatile market conditions and an uncertain economic
about bigger economic themes or threats. A rotation in investment style environment. We mitigated short-term volatility at the portfolio level by
factors, which saw value stocks favoured over growth stocks, also posed a adding to defensive sectors such as consumer staples and lowering active
challenge. exposure to the healthcare, technology and renewable energy sectors.
The Company's NAV underperformance during the Financial Year was largely We initiated a position in Inner Mongolia Yili, the dairy products producer,
driven by stock selection. Sector allocation effects were broadly neutral, for its defensive fundamental characteristics. We also established a holding
although the portfolio's lack of exposure to the strong-performing energy in Anhui Conch Cement, the largest cement manufacturer in China, to increase
sector was a detractor to performance. We find few quality stocks in a the portfolio's
exposure to infrastructure. In August, we participated in the Hong Kong IPO of of 2022. Furthermore, we believe macro policy is likely to remain largely
China Tourism Group Duty Free. Its shares were listed at an attractive accommodative, with more legroom to support growth due to relatively low
discount and we believe the company's long-term outlook is positive. levels of inflation pressures that remain well contained. Secondly, recent
Elsewhere, we continued to increase our position in Aier Eye Hospital Group, measures to ease Covid restrictions have come at an accelerated pace that has
the provider of ophthalmology medical services, to reflect our preference for taken everyone by surprise and this is a positive development for markets. It
medical services companies within the healthcare sector. reflects the Government's concerns over the state of the economy as a result
of its zero-Covid strategy. While the pivot may not seem gradual by
We exited China Conch Venture, the construction engineering company, and its international standards at the time of writing, there are still restrictions
spin-off entity, China Conch Environment Protection, companies principally such as the need for a PCR test before entering China and, more importantly,
engaged in the provision of environmental protection services due to worsening the mandate requiring everyone to continue to wear masks. Like other Asian
competition dynamics and concern over the companies' funding capability. In countries, we think the reopening will be bumpy with infections peaking in
September, we sold out of our position in surgical robot company Shanghai different phases, starting with cities before moving to rural areas.
Microport Medbot due to increased regulatory risks that did not align with our
original expectations. Additionally, the troubled property sector now appears to be well-supported,
including a raft of liquidity support measures announced in recent months.
We calculate that the average top line revenue growth of the companies in the This indicates that the central Government is well aware of the economic
portfolio during the Financial Year was 18% year-on-year ("yoy"). This growth headwinds facing China and is prepared to intervene and protect the growth
was mainly driven by our holdings in the "Green" theme, which are expected to trajectory. Chinese companies have thus far demonstrated strong fundamentals,
register an average of 61% yoy growth due to favourable government policies with earnings growth of around 20%, despite an extremely challenging
and accelerated developments throughout the industry. The "Health & environment in the Chinese equities markets for most of the Financial Year.
Wellness" theme also performed well, with revenue growth of 22% yoy. Valuations also remain undemanding due to investor sentiment. We believe a
combination of favourable earnings and supportive policies in 2023 will help
Our "Aspiration", "Digital" and "Wealth" themes performed less well, being improve international investor sentiment towards China.
negatively affected by Covid, delivering 12%, 12% and 2% yoy revenue growth
respectively. Given the rapid pace of reopening, inevitably, the number of deaths from Covid
will rise, but it is a price the Government judges as not being high enough to
Earnings growth for the portfolio is largely in-line with revenue growth. offset the benefits of abandoning its zero-Covid strategy. However, the
direction of travel for China is still one of reopening and economic recovery.
Looking ahead, we expect top line revenue to recover. Growth of Green To that end, we believe there is strong long-term potential in our five
investments is predicted to normalise from a high base this year, while growth portfolio themes: aspiration, digital, green, health and wealth. That said,
from companies representing Aspiration, Wealth and Digital themes should the long-term growth trajectory also faces some headwinds, including supply
gradually pick up as Covid subsides and the Chinese economy recovers post chain diversification away from China and restricted access to advanced US
reopening. Earnings growth for the portfolio is expected to rebound to 65% yoy technologies. This is where we believe our bottom-up stock-picking approach,
next year. Three Year Earnings Compound Annual Growth Rate ("CAGR") for grounded in fundamental research and local expertise, provides an advantage in
holdings in the portfolio remains solid at 35% on average. finding the best quality companies in which to invest.
Outlook Nicholas Yeo and Elizabeth Kwik
abrdn Hong Kong Limited
While it is still early for the Chinese economy to show strong signs of 13 February 2023
recovery, we are positive on the outlook in 2023 for several reasons. Firstly,
stimulus measures have been working their way through the system since the
start of the second half
ESG Highlights for the Company
The Investment Manager has been actively integrating Environmental Social and personal data, tackling monopolistic practices and ensuring basic labour
Governance ("ESG") into its investment decision-making process for 30 years rights. These policy initiatives translate into investment insights. Companies
and believes that ESG factors are financially material, and can materially that do not adapt to the developing policy focus may face a challenged
affect a company's performance. outlook. As investors, understanding policy direction is key to assessing
investment opportunities.
• Our Investment Manager has ESG resources and expertise in China,
Hong Kong and Singapore. This enables our Investment Manager to glean insights 2. At the stock level, our Investment Manager works closely with abrdn's
from company visits, have a deep understanding of the relevant government Central ESG Investment Function - a team of more than 20 ESG experts - to
policy developments and obtain an ESG information advantage. identify and understand material ESG risks and opportunities. This process
focuses on rigorous due diligence and ESG analysis, coupled with ongoing
• The Company's portfolio is ESG BBB rated by MSCI. This is higher engagement and dialogue, which helps our Investment Manager to identify and
than the benchmark rating of BB. invest in companies with strong ESG standards. This process is
research-intensive and requires a strong on-the-ground presence. However, our
• The Company's carbon footprint is 52.8% lower than its benchmark. Investment Manager also believes that this attention is an important
contributor to alpha generation, encouraging and investing in positive change
Our Approach to ESG at companies. Progressive ESG policies should drive a company's financial
performance and share prices over the long-term. (()For more on the link
Although ESG factors are not the over-riding criteria in relation to the between ESG and performance, see: https://www.abrdn.com/en/
investment decisions taken by our Investment Manager, significant emphasis is capgemini/insights-thinking-aloud/article-page/esg-performance-evidence)
placed on ESG and climate-related factors throughout the Company's investment
process. External research agencies primarily use backward looking data to create ESG
ratings and in doing so form the market view of a company's ESG credentials.
The Board believes that a full and thorough assessment of ESG factors will Through our Investment Manager's fundamental research, the team forms a
result in better investment decisions to be made. ESG factors are considered forward-looking view of companies' ESG credentials.
by our investment manager, alongside financial and other fundamental factors,
in order to make the best possible investment decisions at a stock picking and ACIC does not exclude any sectors from its investment universe but all
at a portfolio construction level. investments must pass a quality test and ESG issues are only part of the
investment analysis. In addition, our Investment Manager undertakes engagement
Our approach to due diligence and research, coupled with third party provided initiatives with, well-managed and well-capitalised companies which may not
research (including MSCI and abrdn's in-house ESG rating tools), enables us to necessarily immediately be considered ESG leaders. Our Investment Manager
identify ESG leaders and laggards. Our Investment Manager has a close seeks to effect change and develop best ESG practice through these engagement
relationship with the ESG specialists within abrdn. The type of ESG research activities, which often run over several years. Progressive, well-managed
and analysis required in China is deeper and more nuanced than for many other companies are usually open to engagement and expert advice.
markets. There are two components to this:.
ESG Considerations in China
1. At the macroeconomic level, our Investment Manager works closely with
the abrdn Research Institute to understand and contextualise economic, There is a growing appreciation from many Chinese companies of the value that
political and regulatory developments. Government policy objectives in China attention to ESG factors can bring. Standards are evolving, disclosure is
focus on areas such as social, economic and financial stability, climate improving, and regulations (and enforcement of those regulations) around some
change and national security. However, within these broader policy objectives, social and environmental behaviours are stronger than
more granular objectives have emerged. These include protecting
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in the past. Importantly, dialogue between companies and investors has Understanding the difference in quality of these companies requires deep due
improved significantly over the last five to ten years. diligence and engagement with their boards and managers.
More Chinese companies are outlining their thinking on sustainability, 2. Related-party transactions
aspirations to reduce their carbon footprints, and the frameworks they have in
place to negate ESG-related risks. There has been tangible progress, including Share ownership in China can be concentrated. In addition, controlling
improvements in corporate governance, formalised dividend payout policies, shareholders often have multiple private and public interests.
improved transparency in reporting, and much-improved shareholder engagement.
Complex ownership structures present challenges for investors. Perhaps the
These improvements have, in many cases, come as a result of sustained most difficult of these involve related-party transactions. These are
engagement and dialogue between long-term investors and companies. transactions between a listed company and another connected party such as
shareholders, directors, sister companies, suppliers, or a range of other
Set out below are some of the most pressing ESG issues we consider when potential parties.
investing in Chinese companies and how we respond to them:
There are very clear conflicts of interest here, and a risk that value is
1. State control and state-owned enterprises 'tunnelled' out of the listed company. This could be through mispricing on
transactions, the provision of financial guarantees (or broader financial
One misconception often held about China is that its economy is dominated by services), or the deprivation of business opportunities.
state-owned enterprises (SOEs). The reality is more nuanced. In the early days
of the Chinese economic growth story SOEs did indeed dominate the economy (and However, related party transactions are also part of the normal course of
hence stock markets). They were typically involved in heavier industries, business in China. As investors, we need to be aware of the risks, and how
including iron and steel, oil and gas. However, over time the balance has best to manage them. This can involve identifying which transactions are a
tilted towards private/entrepreneur-owned companies. normal course of business, and which have the potential to be abusive and
potentially negative to the long-term prospects of that company.
SOE reform in the late 1990s and early 2000s saw a reduction in the number of
SOEs coupled with a decline in their share of economic activity, and a How our Investment Manager's Due Diligence process helps
formalisation of the governance structure of these SOEs. Many of the remaining
SOEs underwent reform, putting in place governance structures and management Our Investment Manager's due diligence process always starts with the
processes more familiar to investors in listed companies controlling shareholder in order to ascertain how their interests align with
ACIC's interests as a minority shareholder. Our Investment Manager checks the
Not all SOES are the same controlling shareholder's background to understand the alignment of interests,
what connections they retain to privately held vehicles, and the way these
It's important to recognise that not all SOEs are the same in terms of market interests may compete. Attention is also given to the board and management
orientation. Our Investment Manager's deep due diligence focuses on the team and their competence, character, and commitment and, ultimately, whether
structure of SOE ownership (which government entity owns the SOE and whether the management team meets the quality hurdle.
it's a regional or central organisation); the degree to which an SOE's
strategy might be influenced or driven by government policy; strategies Our Investment Manager also examines transactions in detail to understand
considered by management and how they have been executed; and remuneration or rationale and pricing and whether a transaction is in the normal course of
incentive schemes that are in place. business, why a particular counter-party was sought, and how pricing was
determined. This is laborious work, but absolutely critical to your Company's
investment approach.
3. Climate and environmental impact Please see below for some specific examples of our Investment Manager's
engagement and its outcome.
China is both the largest single emitter of carbon dioxide globally, and also
- by some distance - the world's top investor in renewable energy.
China has steadily funded research into renewables over the past decades, with ESG case study: Proya Cosmetics
the aim of both decarbonising its own energy system, and establishing itself
as the 'winner' as the world seeks to decarbonise. China has set ambitious Proya Cosmetics ("Proya") is China's fifth largest beauty and skincare
targets for decarbonisation, including its peak carbon and net-zero pledges. company. Proya has five brands, focused on younger consumers and is enjoying
rapid sales growth through its online channels and boutiques. The company has
This presents compelling investment opportunities. Not just in the context of invested in product upgrades and innovation, expanding beyond its traditional
the domestic Chinese market, but because Chinese renewables companies are skin-care related products into colour cosmetics.
worldleaders and will be central to decarbonisation globally.
Our Investment Manager has engaged with Proya on several issues, including its
Chinese companies are also increasingly conscious of their own environmental use of certain chemicals in products, animial testing and sustainable
impact and carbon footprint. When conducting research, ACIC looks for packaging. Proya now closely follows China's strict environmental protection
companies that are either maximising their energy efficiency, minimising their laws and regulations. It has also eliminated all non-degradable raw materials
carbon footprint, or providing products or services that allow other companies such as microbeads from its products, replacing them with natural degradable
to do the same. We are able to get reliable data from companies. This is the materials.
starting point for engagement in order to understand how companies are
managing their carbon emissions, water or energy risk and other factors. Up until October 2022, Proya was rated CCC rating by MSCI, and was considered
an ESG "laggard". However, based on on-the-ground engagement, it was clear
While many Chinese companies are willing to disclose snapshot statistics that the company's management was more advanced in its thinking and ESG
(current year water consumption, for example), they tend to bes less willing practices than its disclosures suggested. Therefore, we encouraged management
to disclose targets publicly for fear of not achieving targets. However, many to improve disclosures.
companies are doing a lot more than they disclose publicly.
As a result, MSCI has now upgraded the Proya's rating to BBB, which is
Engagement and disclosure considered an "average" rating and our Investment Manager expects this to
advance further over time with the company's understanding of its ESG
Our approach is to engage collaboratively with portfolio companies, with the obligations and opportunities for further improvements.
aim of sharing expectations and disclosure of best practices, to help maintain
and enhance the ESG standards of these companies. These meetings provide an
opportunity to discuss various relevant ESG issues including board
composition, remuneration, audit, climate change, labour issues, human rights,
bribery and corruption. Companies are strongly encouraged to set clear targets
or key performance indicators on all material ESG risks so as to enable
performance monitoring. Discussions cover both risk and opportunities; our
Investment Manager challenges management teams constructively on issues
relating to strategy and execution, as well as capital allocation and return.
These engagements are collaborative and usually long-term.
ESG case study: Kweichow Moutai
Kweichow Moutai is a high-end Chinese producer of baijiu, the world's
biggest-selling spirit.
Our Investment Manager has invested in Kweichow Moutai for a number of years.
The company's products are hugely popular in China's massive baijiu market.
Male consumers, who account for most baijiu consumption, tend to drink premium
baijiu such as Kweichow Moutai as they grow older and wealthier. Swelling
numbers of high-net-worth individuals in China should therefore be a powerful
long-term driver of demand. We have actively engaged with the company on a
range of topics including climate change, environmental practices, labour
management, human rights and stakeholder interests and corporate governance.
We reviewed the company's 2019 corporate and social responsibility (CSR)
report and believe that its ESG practices, and disclosures, have been
improving. Meanwhile, Kweichow Moutai sought specific feedback from investors
on a range of ESG-related topics. In January 2022, we contacted the Board to
encourage the company to establish energy efficiency targets and distribute
its CSR report to a wider audience.
MSCI recently upgraded the company's ESG rating from CCC to B. Our Investment
Manager believes that its engagement with the company has contributed to, and
will continue to contribute to, a higher ESG rating and positive outcomes for
stakeholders.
Information about the Manager, Investment Manager and Investment Management
Team
Manager (abrdn Fund Managers Limited) Investment Manager (abrdn Hong Kong Limited)
The Company's Alternative Investment Fund Manager is abrdn Fund Managers The Company's portfolio is managed by abrdn Hong Kong Limited ("aHKL") by way
Limited (previously know as Aberdeen Standard Fund Managers Limited) ("AFML" of a group delegation agreement in place between AFML and aHKL. aHKL is
or the "Manager"), which is a wholly owned subsidiary of abrdn plc and is authorised and regulated by the Securities and Futures Commission of Hong
authorised and regulated by the FCA. AFML has been appointed to provide Kong.
investment management, risk management and promotional activities to the
Company.
The abrdn Group's assets under management and administration were £508 Elizabeth Kwik
billion as at 30 June 2022, managed for a range of clients including 22
Investment Manager
UK-listed closed end investment companies.
Elizabeth Kwik is an Investment Manager on the China/Hong Kong Equities Team
The Investment Management Team at abrdn where she is responsible for researching the Consumer Discretionary,
Automobiles & Components and Banking sectors. Elizabeth sits on the China
Nicholas Yeo A share and All China equity fund portfolio construction groups. She joined
Director and Head of Equities, China abrdn in 2013.
Nicholas Yeo is the Head of China/Hong Kong Equities team at abrdn. Nicholas Elizabeth holds a Bachelor of Science in Economics from the London School of
joined abrdn in 2000 via the acquisition of Murray Johnstone. He was seconded Economics. She is a CFA charterholder.
to the London Global Emerging Market team for two years where he covered EMEA
and Latin American companies, before returning to the Asian Equities team in
Singapore in March 2004. In March 2007, he transferred to Hong Kong to lead
Chinese equity research.
Nicholas holds a BA (Hons) in Accounting and Finance from The University of
Manchester and an MSc in Financial Mathematics from Warwick Business School.
He is a CFA charterholder.
Nicholas Yeo is the Head of China/Hong Kong Equities team at abrdn. Nicholas
joined abrdn in 2000 via the acquisition of Murray Johnstone. He was seconded
to the London Global Emerging Market team for two years where he covered EMEA
and Latin American companies, before returning to the Asian Equities team in
Singapore in March 2004. In March 2007, he transferred to Hong Kong to lead
Chinese equity research.
Nicholas holds a BA (Hons) in Accounting and Finance from The University of
Manchester and an MSc in Financial Mathematics from Warwick Business School.
He is a CFA charterholder.
Investment Manager (abrdn Hong Kong Limited)
The Company's portfolio is managed by abrdn Hong Kong Limited ("aHKL") by way
of a group delegation agreement in place between AFML and aHKL. aHKL is
authorised and regulated by the Securities and Futures Commission of Hong
Kong.
Elizabeth Kwik
Investment Manager
Elizabeth Kwik is an Investment Manager on the China/Hong Kong Equities Team
at abrdn where she is responsible for researching the Consumer Discretionary,
Automobiles & Components and Banking sectors. Elizabeth sits on the China
A share and All China equity fund portfolio construction groups. She joined
abrdn in 2013.
Elizabeth holds a Bachelor of Science in Economics from the London School of
Economics. She is a CFA charterholder.
Portfolio
The Company's NAV total return for the Financial Year was -37.0%, which
compares to MSCI China All Shares Index Net Total Return in sterling terms of
-31.5% for the Financial Year.
Ten Largest Investments
Tencent (7.0%) An innovative leader in China's internet sector with a strong Contemporary Amperex Technology (3.2%) The largest lithium battery maker in
presence in fintech and cloud segments, backed by an entrenched social media the world with leading technology and supply chain advantage, set to benefit
and payment ecosystem. from rise of electric vehicle and energy storage.
Kweichow Moutai (4.9%) The largest maker of Chinese alcohol spirit Baijiu, China Tourism Group Duty Free (3.2%) China's largest duty-free operator that
positioned in the ultrapremium space where there are few competitors. The is well placed to benefit from supportive government policy and rising demand
company is well placed to capture rising domestic consumption trends in China. for duty-free cosmetics on the mainland.
Meituan (4.3%) A diversified online services platform with over 400 million Bank of Ningbo (3.1%) A city bank focused on lending to small and medium
users, offering services including food delivery, travel bookings and wedding enterprises in the affluent Ningbo-Zhejiang region. The bank has shown
planning. It is optimally placed to capture rising consumption in mainland superior returns and asset quality over the years.
China.
China Merchants Bank (3.9%) A best-in-class retail bank in China, offering JD.com (3.0%) An online retailer with an edge in its strong logistics network.
diversified financial services with a solid track record and sound risk The company has shown improving corporate governance and management quality
management practices in place. over the years.
Alibaba Group (3.6%) The Chinese internet group is a leading global e-commerce Ping An Bank (2.6%) One of the three main pillars of the Ping An Group, a
company with leading platforms including Taobao and T-mall in the mainland. reputable retail bank offering services in retail and corporate banking,
The company also has interests in logistics and media as well as cloud including investment banking services with solid management track record.
computing platforms and payments.
% shows the percentage of net assets invested in each holding.
Investments
Portfolio listing as at 31 October 2022
Company Industry Value Percentage of
(Sub-Sector) (£'000) net assets (%)
Tencent Holdings Ltd Interactive Media & Services 16,323 7.0
Kweichow Moutai Co Ltd Beverages 11,435 4.9
Meituan Internet & Direct Marketing Retail 9,882 4.3
China Merchants Bank Co Ltd Banks 9,007 3.9
Alibaba Group Holding Ltd Internet & Direct Marketing Retail 8,244 3.6
Contemporary Amperex Technology Co Ltd Electrical Equipment 7,364 3.2
China Tourism Group Duty Free Corp Ltd Banks 7,326 3.2
Bank of Ningbo Co Ltd Banks 7,125 3.1
JD.com Inc Internet & Direct Marketing Retail 6,918 3.0
Ping An Bank Co Ltd Banks 6,035 2.6
Top ten investments 89,659 38.8
AIA Group Ltd Insurance 6,027 2.6
Glodon Co Ltd Software 5,134 2.2
Proya Cosmetics Co Ltd Personal Products 5,106 2.2
Wanhua Chemical Group Co Ltd Chemicals 5,044 2.2
LONGi Green Energy Technology Co Ltd Semiconductors & Semiconductor Equipment 4,731 2.0
Shenzhen Mindray Bio-Medical Electronics Co Ltd Textiles, Apparel & Luxury Goods 4,584 2.0
Sungrow Power Supply Co Ltd Electrical Equipment 4,533 1.9
Nari Technology Co Ltd Electrical Equipment 4,033 1.7
Yunnan Energy New Material Co, Ltd. Containers and Packaging 3,873 1.7
Hundsun Technologies Inc Software 3,871 1.7
Top twenty investments 136,595 59.0
Chacha Food Co Ltd Food Products 3,771 1.6
Fuyao Glass Industry Group Co Ltd Auto Components 3,714 1.6
NetEase Inc Interactive Media & Services 3,607 1.6
Midea Group Co., Ltd. Electrical Equipment 3,599 1.5
Hefei Meiya Optoelectronic Technology Inc Machinery 3,584 1.5
Li Ning Co Ltd Textiles, Apparel & Luxury Goods 3,531 1.5
Hong Kong Exchanges & Clearing Ltd Capital Markets 3,415 1.5
Sinoma Science & Technology Co Ltd Chemicals 3,414 1.5
Aier Eye Hospital Group Co Ltd Health Care Providers & Services 3,319 1.4
Shanghai M&G Stationery Inc Commercial Services & Supplies 3,241 1.4
Top thirty investments 171,790 74.1
Foshan Haitian Flavouring & Food Co Ltd Food Products 3,159 1.4
Venustech Group Inc Software 3,112 1.3
StarPower Semiconductor Ltd. Semiconductors & Semiconductor Equipment 3,067 1.3
By-health Co Ltd Personal Products 3,034 1.3
China Vanke Co Ltd Banks 3,026 1.3
Shenzhou International Group Holdings Ltd Textiles, Apparel & Luxury Goods 2,987 1.3
China Resources Land Limited Real Estate Management & Development 2,934 1.3
Amoy Diagnostics Co Ltd Biotechnology 2,830 1.2
Estun Automation Co., Ltd Machinery 2,724 1.2
Hangzhou Tigermed Consulting Co Ltd Life Sciences Tools & Services 2,606 1.1
Top forty investments 201,269 86.8
Wuxi Biologics Cayman Inc Life Sciences Tools & Services 2,545 1.1
China Meidong Auto Holdings Ltd Banks 2,449 1.1
Luxshare Precision Industry Co Ltd Electronic Eqpt Instruments & Components 2,259 1.0
Inner Mongolia Yili Industrial Group Co Ltd Beverages 2,231 1.0
Jiangsu Hengrui Medicine Co Ltd Pharmaceuticals 2,211 0.9
Zhejiang Weixing New Building Materials Co., Ltd. Plumbing Fixtures & Fittings 2,122 0.9
Anhui Conch Cement Company Limited Construction and Materials 2,057 0.9
Maxscend Microelectronics Co Ltd Electronic Eqpt Instruments & Components 1,835 0.8
Komodo Fund Unit Trusts 1,319 0.6
Yantai China Pet Foods Co Ltd Food Products 1,291 0.5
Top fifty investments 221,588 95.6
GDS Holdings Ltd IT Services 1,056 0.4
Zai Lab Ltd Biotechnology 961 0.4
Wuliangye Yibin Co Ltd Beverages 459 0.2
Total investments 224,064 96.6
Cash plus other net current assets and liabilities 7,779 3.4
Net assets 231,843 100.0
Sector Breakdown as at 31 October 2022
Sector breakdown %
Consumer Discretionary 21.4
Financials 14.4
Consumer Staples 13.6
Industrials 12.3
Information Technology 11.2
Communication Services 8.9
Health Care 8.5
Materials 6.4
Real Estate 2.7
Unit Trusts 0.6
Source: Datastream
Governance
The Company is committed to high standards of corporate governance and applies
the principles identified in the UK Corporate Governance Code and the AIC Code
of Corporate Governance.
All Directors are considered by the Board to be independent of the Company and
the Manager and free of any material relationship with the Manager.
Directors' Report
The Directors of abrdn China Investment Company Limited ("the Company") terms) plus 5%, as measured at the time of investment. The maximum permitted
present the report and financial statements for the Financial Year ended 31 exposure to a single group is 20% of the Company's total assets, as measured
October 2022. at the time of investment.
Investment Objective and Investment Policy The Company may continue to hold certain illiquid assets which were acquired
prior to adoption of this policy pending their orderly disposal. These assets
A change of investment objective and investment policy was approved by are not expected to represent a significant proportion of the portfolio.
shareholders on 26 October 2021. The new investment objective and investment
policy is set out below: Risk Management
Investment Objective The Company will at all times be invested in several sectors. While there are
no specific limits placed on exposure to any one particular sector, the
The Company's investment objective is to produce long-term capital growth by Company will at all times invest and ensure that the portfolio is managed in a
investing predominantly in Chinese equities. manner consistent with spreading investment risk.
Investment Policy The Company may invest in unquoted securities and/or securities with lock-up
periods provided that such investments, in aggregate, are limited to 10% of
The Company invests in companies listed, incorporated or domiciled in the the Company's net assets at the time any such investment is made.
People's Republic of China ("China"), or companies that derive a significant
proportion of their revenues or profits from China operations or have a With prior approval of the Board, the Company may use derivatives for the
significant proportion of their assets there. In furtherance of the investment purposes of efficient portfolio management in order to reduce, transfer or
policy, the portfolio will normally consist principally of quoted equity eliminate investment risk in the Company's portfolio. Derivative instruments
securities and depositary receipts although unlisted companies, fixed interest in which the Company may invest may include foreign exchange forwards,
holdings or other non-equity investments may be held. Investments in unquoted exchange-listed and over-the-counter options, futures, options on futures,
companies will be made where the Investment Manager has a reasonable swaps and similar instruments. The Company does not intend to enter into
expectation that the company will seek a listing in the near future. The derivative or hedging transactions to mitigate against wholesale general
portfolio is actively managed and may be invested in companies of any size and currency or interest rate risk.
in any sector.
The Company may invest no more than 10% in aggregate of its gross asset value
The Company is expected to have an ESG rating equal to, or better than, the at the time of acquisition in other listed closed-ended investment funds, but
MSCI China All Shares Index and have meaningfully lower carbon intensity than this restriction will not apply to investments in such funds which themselves
the Index. have stated investment policies to invest no more than 15% of their gross
asset value in other closed-ended investment funds.
The portfolio is actively managed and the Company aims to outperform the MSCI
China All Shares Index (in sterling terms). This index is used as a reference Gearing
point for portfolio construction and as a basis for setting risk constraints,
but does not incorporate any sustainability criteria. In order to achieve its The Company may employ gearing and may in aggregate, borrow amounts equalling
objective, the Company will take positions whose weightings diverge from the up to 20% of gross asset value, although the Board expects that borrowings
index or invest in securities which are not included in the index. Investments will typically not exceed 15% of gross asset value at the time of drawdown.
may deviate significantly from the components of, and their respective
weightings in, the MSCI China All Shares Index. Due to the active nature of While it is intended that the Company will be fully invested in normal market
the management process, the Company's performance profile may deviate conditions, the Company may hold cash on deposit or invest on a temporary
significantly from that of the index. basis in a range of cash equivalent instruments. There is no restriction on
the amount of cash or cash-equivalent instruments that the Company may hold.
The portfolio is expected normally to comprise between 30 and 60 securities
(including any unlisted securities held) but may hold up to 100. No individual
issuer will represent a greater weight in the portfolio than the lower of (i)
10% or (ii) its weight in the MSCI China All Shares Index (in sterling
Principal Risks, Emerging Risks and Uncertainties (iv) Risks relating to regulation, taxation and the Company's operating
environment
Together with the issues discussed in the Chairman's Statement and the
Investment Manager's Report, the Board considers that the main risks and • The Covid-19 pandemic may adversely affect the performance of investee
uncertainties faced by the Company fall into the following categories: companies due to ongoing macroeconomic and market uncertainty, which may in
turn adversely impact the Company's financial performance and prospects and
the value of its portfolio.
(i) Risks relating to the Company • Changes in the laws or regulations in Guernsey or the UK which govern
the Company's and the Investment Manager's operations may have an adverse
The Company has no employees and the Directors have been appointed on a effect on the ability of the Company and the Manager / Investment Manager to
non-executive basis. The Company is therefore reliant upon the performance of carry on their respective businesses and any such changes could have an
third-party service providers for its executive functions and is exposed to adverse effect on the portfolio and on the Company's financial condition,
the risk that misconduct by employees of those service providers, any failure results of operations and prospects, with a consequential adverse effect on
by any service provider to carry out its obligations to the Company in the market value of the Shares.
accordance with the terms of its appointment, or the termination of those
appointments could have an adverse effect on the portfolio and the Company's Management or mitigation of the above risks
financial condition, results of operations and prospects, with a consequential
adverse effect on the market value of its Ordinary shares. The Company has a risk management process in place. This mechanism enables the
Board to monitor the Company's spread of investments across several sectors.
The Board receives and monitors reports from the Manager and the Administrator
on a quarterly basis at the minimum.
(ii) Risks relating to the investment policy
(v) Internal Risks
• There can be no guarantee that the Company will achieve its investment
objective or that investors will get back the full value of their investment. Poor allocation of the Company's assets by the Investment Manager, poor
governance, compliance or administration, including poor controls over cyber
• The investments of the Company are subject to the risk of changes in security, could result in shareholders not making acceptable returns on their
market prices or macroeconomic factors. Any such changes could have an adverse investment in the Company.
effect on the value of the portfolio, the Company's financial condition,
results of operations and prospects, with a consequential adverse effect on Management or mitigation of internal risks
returns to shareholders and the market value of its Ordinary shares.
The Board monitors the performance of the Manager and the other key service
• The Company's NAV is inherently sensitive to the performance of providers at regular Board meetings. The Manager provides reports to the Board
Chinese equity markets which could result in the Company's Ordinary shares on compliance matters and the Administrator provides reports to the Board on
trading at a discount or being less liquid. compliance and other administrative matters. The Board has established various
committees to ensure that relevant governance matters are addressed by the
• The portfolio will be concentrated in a single country and will Board.
therefore be exposed to risks associated with geographical concentration,
including being exposed to the fluctuations of a more limited geographical The management or mitigation of internal risks is described in detail in the
market and fewer currencies than a less concentrated portfolio. Corporate Governance Statement in the Annual Report for the Financial Year
ended 31 October 2022.
• The Company is exposed to particular economic, regulatory, political,
geopolitical, environmental and taxation risks associated with investments in (vi) Emerging Risks
the People's Republic of China, which could have an adverse effect on the
portfolio, the Company's financial condition, results of operations and Emerging risks are slow moving trends, innovations and shifts with potential
prospects were they to materialise, with a consequential adverse effect on the consequence to a specific industry or sector in the long-term. They can
market value of its Ordinary shares. include movements in: demographics, economics, society, technological
innovations, national policy and governance. Long-term shifts in temperatures
• The Company is exposed to currency and foreign exchange risk as a and weather patterns caused by human activity, primarily due to the burning of
result of holding investments denominated in currencies other than sterling fossil fuels, or by natural phenomena may have a negative effect on ecological
which could have an adverse effect on the portfolio and the Company's and socioeconomic wellbeing.
financial condition, results of operations and prospects, with a consequential
adverse effect on the market value of its Ordinary shares. Management or mitigation of emerging risks
(iii) Risks relating to the Manager/Investment Manager A risk management register and associated risk heat map, providing a visual
reflection of the Company's identified and emerging risks have been
• The success of the Company is dependent on the Alternative Investment established to monitor and mitigate risks to the Company, with both a risk pre
Fund Manager ("AIFM") and the Investment Manager and their expertise, key mitigation and risk post mitigation score determined, depending on the impact
personnel, and ability to source and advise appropriately on investments. As a of the risk combined with the probability of the risk occurring.
result of this, the Company's portfolio, financial condition, results of
operations, prospects and the value of the shares could be adversely affected (vii) Failure to manage premium and/or discount
by: competitive pressures on the AIFM or the Investment Manager's ability to
source and make successful investments; any failure by the AIFM or the The Board's discount control policy is that the Company's shares should not
Investment Manager to carry out due diligence and obtain relevant information trade at a price which, on average, represents a discount that is out of line
on prospective investments; or any loss of key personnel of the AIFM or the with the Company's direct peer group. To assist the Board in taking action to
Investment Manager and any inability to recruit appropriate replacements in a deal with a material and sustained deviation in the Company's discount from
timely fashion. its peer group, it seeks authority from Shareholders annually to buy back
shares. Shares may be repurchased when, in the opinion of the Board and taking
into account factors such as market conditions and the discounts of comparable
companies, the Company's discount is higher than desired and shares are
available to purchase in the market. The Board is of the view that the
principal purpose of share repurchases is to enhance the net asset value
("NAV") for remaining shareholders, although it may also assist in addressing
the imbalance between the supply of and demand for the Company's shares and
thereby reduce the scale and volatility of the discount at which the shares
trade in relation to the underlying NAV.
Statement of Directors' Responsibilities
In Respect of the Annual Report and Accounts The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website (but not
The Directors are responsible for preparing the Annual Report and Accounts in for the content of any information included on the website that has been
accordance with applicable law and regulations. prepared or issued by third parties). Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ from
Guernsey company law requires the Directors to prepare financial statements legislation in other jurisdictions.
for each financial year. The Directors have elected to prepare the financial
statements in accordance with International Financial Reporting Standards as Disclosure of Information to the Auditor
issued by the IASB and applicable law.
The Directors who held office at the date of approval of the Directors' Report
Under company law the Directors must not approve the financial statements confirm that, so far as they are each aware, there is no relevant audit
unless they are satisfied that they give a true and fair view of the state of information of which the Company's auditor is unaware; and each Director has
affairs of the Company and of its profit or loss for that period. In preparing taken all the steps that they ought to have taken as a Director to make
these financial statements, the directors are required to: themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
• select suitable accounting policies and then apply them consistently;
Responsibility Statement of the Directors in Respect of the Annual Report
• make judgements and estimates that are reasonable, relevant and
reliable; We confirm that to the best of our knowledge:
• state whether applicable accounting standards have been followed, • the financial statements, prepared in accordance with the applicable
subject to any material departures disclosed and explained in the financial set of accounting standards, give a true and fair view of the assets,
statements; liabilities, financial position and profit or loss of the Company; and
• assess the Company's ability to continue as a going concern, • the Management Report (comprising the Chairman's Statement, the
disclosing, as applicable, matters related to going concern; and Investment Manager's Report and the Governance reports including the
Directors' Report) includes a fair review of the development and performance
• use the going concern basis of accounting unless they either intend to of the business and the position of the Company, together with a description
liquidate the Company or to cease operations or have no realistic alternative of the principal risks and uncertainties that it faces.
but to do so.
The Board considers that the Annual Report and Accounts, taken as a whole, is
The Directors are responsible for keeping proper accounting records that are fair, balanced and understandable and provides the information necessary for
sufficient to show and explain the Company's transactions and disclose with shareholders to assess the Company's position and performance, business model
reasonable accuracy at any time the financial position of the Company and and strategy.
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they Helen Green
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have Chairman
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other 13 February 2023
irregularities.
Financial Statements
Net assets per Ordinary share decreased by 37.0% to 512.0p, while the revenue
profit was 4.0p per Ordinary share as compared to a loss of 0.61p per Ordinary
share in 2021.
Statement of Comprehensive Income
Year ended 31 October 2022 Year ended 31 October 2021
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments at fair value through profit or loss 4 - (143,283) (143,283) - 64,051 64,051
Transaction costs 8 - 832 832 - 387 387
Losses on currency movements - (354) (354) - - -
Net investment (losses)/gains - (142,805) (142,805) - 64,438 64,438
Investment income 5 4,108 - 4,108 3,667 - 3,667
Investment management fees 6 (1,020) - (1,020) (2,753) - (2,753)
Other expenses 6 (913) - (913) (882) - (882)
Operating (loss)/profit before finance costs and taxation 2,175 (142,805) (140,630) 32 64,438 64,470
Finance costs 9 (109) - (109) (176) - (176)
Operating (loss)/profit before taxation 2,066 (142,805) (140,739) (144) 64,438 64,294
Withholding tax expense (215) - (215) (138) - (138)
Total (loss)/profit and comprehensive income for the year 1,851 (142,805) (140,954) (282) 64,438 64,156
Basic earnings and diluted earnings per Ordinary share 10 4.00p (308.70p) (304.70p) (0.61p) 140.19p 139.58p
The Total column of this statement represents the Company's Statement of
Comprehensive Income, prepared under IFRS. The revenue and capital columns,
including the revenue and capital earnings per Ordinary share data, are
supplementary information prepared under guidance published by the Association
of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year.
The notes form part of these financial statements.
Statement of Financial Position
Note As at As at
31 October 2022 31 October 2021
£'000 £'000
Non-current assets
Investments at fair value through profit or loss 4 224,064 112,905
Current assets
Cash and bank 8,534 201,795
Sales for future settlement - 59,838
Other receivables 56 119
8,590 261,752
Total assets 232,654 374,657
Current liabilities
Purchases for future settlement (222) -
Other payables (564) (835)
Finance costs payable 9 (25) (34)
Total liabilities (811) (869)
Net assets 231,843 373,788
Equity
Share capital 12 147,744 148,735
Capital reserve 13 87,739 230,544
Revenue reserve (3,640) (5,491)
Total equity 231,843 373,788
Net assets per Ordinary share 14 511.98p 813.20p
Approved by the Board of Directors and authorised for issue on 13 February
2023 and signed on its behalf by:
Helen Green
Director
Mark Bridgeman
Director
The notes form part of these financial statements.
Incorporated in Guernsey: Company registration number 50900
Statement of Changes in Equity
For the year ended 31 October 2022
Note Share Capital Revenue Total
capital reserve reserve £'000
£'000 £'000 £'000
Balance at 1 November 2021 148,735 230,544 (5,491) 373,788
Loss for the year - (142,805) 1,851 (140,954)
Scheme of reconstruction:
Ordinary shares issued 62,037 - - 62,037
Ordinary shares repurchased (55,291) - - (55,291)
Tender offer and share issue costs 12 (177) - - (177)
Share buybacks 12 (7,560) - - (7,560)
Balance at 31 October 2022 147,744 87,739 (3,640) 231,843
For the year ended 31 October 2021
Note Share Capital Revenue Total
capital reserve reserve £'000
£'000 £'000 £'000
Balance at 1 November 2020 149,616 176,563 (5,209) 320,970
Profit for the year - 64,438 (282) 64,156
Dividends paid 11 - (10,457) - (10,457)
Tender offer and share issue costs 12 (881) - - (881)
(Scheme of Reconstruction)
Balance at 31 October 2021 148,735 230,544 (5,491) 373,788
The capital reserve at 31 October 2022 is split between realised gains of
£207,445,000 and unrealised losses of £119,706,000 (2021: realised gains of
£183,241,000 and unrealised gains of £47,303,000).
The revenue reserve and realised element of the capital reserve represents the
amount of the Company's retained reserves.
The notes form part of these financial statements.
Statement of Cash Flows
Note Year ended Year ended
31 October 2022 31 October 2021
£'000 £'000
Operating activities
Cash inflow from investment income 4,187 3,885
Cash outflow from management expenses (2,009) (4,093)
Cash inflow from disposal of investments(1) 311,504 401,220
Cash outflow from purchase of investments(1) (446,496) (183,626)
Cash outflow from withholding tax (215) (138)
Net cash flow (used in)/from operating activities 15 (133,029) 217,248
Financing activities
Repayment of bank borrowings 9 - (25,000)
Proceeds from bank borrowings 9 - 12,500
Borrowing commitment fee and interest charges 9 (118) (142)
Dividends paid 11 - (10,457)
Scheme of reconstruction(2)
Ordinary shares issued 3,257 -
Ordinary shares repurchased (55,291) -
Tender offer and share issue costs paid (388) (669)
Share buybacks 20 (7,338) -
Net cash flow used in financing activities (59,878) (23,768)
Net (decrease) / increase in cash and cash equivalents (192,907) 193,480
Effect of foreign exchange (354) -
Cash and cash equivalents at start of the year 201,795 8,315
Cash and cash equivalents at end of the year 8,534 201,795
1 Cash flows from the disposal and purchase of investments have been
classified as components of cash flow from operating activities because they
form part of the Company's operating activities.
2 Actual proceeds received as a result of the Scheme of reconstruction
on 9 November 2021 amounted to £3,257,000 with the remainder being received
in the form of a UK treasury bill amounting to £57,980,000. The UK treasury
bill was immediately sold on 10 November 2021 and subsequently deployed into
Chinese equities.
The notes form part of these financial statements.
Notes to the Financial Statements
For the Year Ended 31 October 2022
1. Reporting entity
abrdn China Investment Company Limited (the "Company") is a closed-ended
investment company, registered in Guernsey on 16 September 2009. The Company's
registered office is 11 New Street, St Peter Port, Guernsey, GY1 2PF. The
Company's Ordinary shares have a premium listing on the London Stock Exchange
and commenced trading on 10 November 2009. The Company changed its name to
abrdn China Investment Company Limited on 26 October 2021 (formerly Aberdeen
Emerging Markets Investment Company Limited). The financial statements of the
Company are presented for the year ended 31 October 2022.
The Company invests in companies listed, incorporated or domiciled in the
People's Republic of China ("China"), or companies that derive a significant
proportion of their revenues or profits from China operations or have a
significant proportion of their assets there. Prior to the combination with
Aberdeen New Thai Investment Trust PLC on 26 October 2021, the Company was
managed in accordance with its previous investment objective, which was to
achieve consistent returns for shareholders in excess of the MSCI Emerging
Markets Net Total Return Index in sterling terms. In furtherance of the new
investment policy, the portfolio will normally consist principally of quoted
equity securities and depositary receipts although unlisted companies, fixed
interest holdings or other non-equity investments may be held. Investments in
unquoted companies will be made where the Manager has a reasonable expectation
that the company will seek a listing in the near future. The portfolio is
actively managed and may be invested in companies of any size and in any
sector.
Manager
The investment activities of the Company were managed by abrdn Fund Managers
Limited ("AFML") during the year ended 31 October 2022.
Non-mainstream pooled investments ("NMPIs")
The Company currently conducts its affairs so that the shares issued by the
Company can be recommended by Independent Financial Advisers to ordinary
retail investors in accordance with the Financial Conduct Authority's rules in
relation to NMPIs and intends to continue to do so for the foreseeable future.
2. Basis of preparation
(a) Statement of compliance
The financial statements, which give a true and fair view, have been prepared
in accordance with International Financial Reporting Standards ("IFRS") as
issued by the IASB and are in compliance with the Companies (Guernsey) Law,
2008. There were no significant changes in the accounting policies of the
Company in the year to 31 October 2022.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP") for Investment Companies issued by the Association of Investment
Companies ("AIC") in July 2022 is consistent with the requirements of IFRS,
the Directors have prepared the financial statements on a basis compliant with
the recommendations of the SORP.
The "Total" column of the Statement of Comprehensive Income is the profit or
loss account of the Company. The "Capital" and "Revenue" columns provide
supplementary information prepared under guidance published by the AIC.
The financial statements were approved and authorised for issue by the Board
on 13 February 2023.
This report will be sent to shareholders and copies will be made available to
the public at the Company's registered office. It will also be made available
on the Company's website: abrdnchina.co.uk.
(b) Going concern
The Directors have adopted the going concern basis in preparing the financial
statements. The Board formally considered the Company's going concern status
at the time of the publication of these financial statements and a summary of
the assessment is provided below.
Since the adoption of the new investment policy, as approved by shareholders
at the EGM held on 26 October 2021, the Board considered it appropriate to
reset the five year interval between Continuation Resolutions so that the next
Continuation Resolution will be put to shareholders at the Annual General
Meeting of the Company to be held in 2027.
The Directors believe that the Company has adequate resources to continue in
operational existence for at least 12 months from the date of approval of this
document. In reaching this conclusion, the Directors have considered the
liquidity of the Company's portfolio of investments as well as its cash
position, income and expense flows.
As at 31 October 2022, the Company held £8.5 million in cash and £224.1
million in investments. It is estimated that approximately 99% of the
investments held at the year end could be realised in one month. The total
operating expenses for the year ended were £1.9 million, which on an
annualised basis represented approximately 0.60% of average net assets during
the year. The Company also incurred £0.1 million of finance costs. At the
date of approval of this report, based on the aggregate of investments and
cash held, the Company has substantial operating expenses cover. The Company's
net assets at 9 February 2023 were £311.0 million.
The Company has a £15 million revolving loan facility with Industrial and
Commercial Bank of China limited, London Branch ('ICBC'), terminating in April
2024. As at 31 October 2022, none of the ICBC facility was drawn down. The
liquidity of the Company's portfolio, as mentioned above, sufficiently
supports the Company's ability to repay its borrowings at short notice. Since
the Financial Year ended the Investment Manager has drawn down a total of
CNH 106m (£12.7m) in two tranches.
In light of the Covid-19 pandemic, the Directors have fully considered and
assessed the Company's portfolio of investments. A prolonged and deep market
decline could lead to falling values of the investments or interruptions to
cashflow. However, the Company currently has more than sufficient liquidity
available to meet any future obligations.
The Directors are satisfied that it is appropriate to adopt the going concern
basis in preparing the financial statements and, after due consideration, that
the Company is able to continue in operation for a period of at least 12
months from the date of approval of these financial statements.
(c) Basis of measurement
The financial statements have been prepared on the historical cost basis
except for investments held at fair value through profit or loss which are
measured at fair value.
(d) Functional and presentation currency
The Company's investments are largely exposed to Chinese markets. However, the
Company's Ordinary shares are issued in GBP sterling and the majority of its
investors are UK based. The vast majority of service providers are also
denominated in sterling. Therefore, the financial statements are presented in
sterling, which is the Company's functional currency. All financial
information presented in sterling has been rounded to the nearest thousand
pounds.
(e) Capital reserve
Profits achieved by selling investments and changes in fair value arising upon
the revaluation of investments that remain in the portfolio are all charged to
profit or loss in the capital column of the Statement of Comprehensive Income
and allocated to the capital reserve. The capital reserve attributable to
realised profits is also used to fund dividend distributions.
(f) Revenue reserve
The balance of all items allocated to the revenue column of the Statement of
Comprehensive Income in each year is transferred to the Company's revenue
reserve. The revenue reserve is also used to fund dividend distributions.
(g) Use of estimates, assumptions and judgements
The preparation of the financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Use of estimates and assumptions
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in future periods affected.
Information about significant areas of estimation uncertainty and critical
judgements in applying accounting policies that have the most significant
effect on the amounts recognised in the financial statements are described
below.
Classification and valuation of investments
Investments are designated as fair value through profit or loss on initial
recognition and are subsequently measured at fair value. The valuation of such
investments requires estimates and assumptions made by the management of the
Company depending on the nature of the investments as described in notes 3 (a)
and 18 and fair value may not represent actual realisable value for those
investments.
Allocation of investments to fair value hierarchy
IFRS requires the Company to measure fair value using the following fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of fair value
hierarchy under IFRS are as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
Use of judgements
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary and provided by independent sources
that are actively involved in the relevant market.
3. Significant accounting policies (a) Investments
(a) Investments
As the Company's business is investing in financial assets with a view to
profiting from their total return in the form of increases in fair value,
financial assets are designated as fair value through profit or loss on
initial recognition. These investments are recognised on the trade date of
their acquisition at which the Company becomes a party to the contractual
provisions of the instrument. At this time, the best evidence of the fair
value of the financial assets is the transaction price. Transaction costs that
are directly attributable to the acquisition or issue of the financial assets
are charged to profit or loss in the Statement of Comprehensive Income as a
capital item. Subsequent to initial recognition, investments designated as
fair value through profit or loss are measured at fair value with changes in
their fair value recognised in profit or loss in the Statement of
Comprehensive Income and determined by reference to:
i) investments quoted or dealt on recognised stock exchanges in an active
market are valued by reference to their market bid prices;
ii) investments other than those in i) above which are dealt on a trading
facility in an active market are valued by reference to broker bid price
quotations, if available, for those investments;
iii) investments in underlying funds, which are not quoted or dealt on a
recognised stock exchange or other trading facility or in an active market,
are valued at the net asset values provided by such entities or their
administrators. These values may be unaudited or may themselves be estimates
and may not be produced in a timely manner. If such
information is not provided, or is insufficiently timely, the Investment
Manager uses appropriate valuation techniques to estimate the value of
investments. In determining fair value of such investments, the Investment
Manager takes into consideration the relevant issues, which may include the
impact of suspension, redemptions, liquidation proceedings and other
significant factors. Any such valuations are assessed and approved by the
Directors. The estimates may differ from actual realisable values;
iv) investments which are in liquidation are valued at the estimate of their
remaining realisable value; and
v) any other investments are valued at the directors' best estimate of fair
value.
Transfers between levels of the fair value hierarchy are recognised as at the
end of the reporting period during which the change has occurred.
Investments are derecognised on the trade date of their disposal, which is the
point where the Company transfers substantially all the risks and rewards of
the ownership of the financial asset. Gains or losses are recognised in profit
or loss in the capital column of the Statement of Comprehensive Income. The
Company uses the weighted average cost method to determine realised gains and
losses on disposal of investments.
(b) Foreign currency
Transactions in foreign currencies are translated into sterling at the
exchange rate at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are retranslated into
sterling at the spot exchange rate at that date. Non-monetary assets and
liabilities denominated in foreign currencies that are measured at fair value
through profit or loss are retranslated into sterling at the exchange rate at
the date that the fair value was determined. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated into sterling using the exchange rate at the date of
the transaction.
Foreign currency differences arising on retranslation are recognised in profit
or loss and, depending on the nature of the gain or loss, are allocated to the
revenue or capital column of the Statement of Comprehensive Income. Foreign
currency differences on retranslation of financial instruments designated as
fair value through profit or loss are shown in the "Losses on currency
movements" line.
(c) Income from investments
Dividend income is recognised when the right to receive it is established and
is reflected in the Statement of Comprehensive Income as Investment income in
the revenue column. For quoted equity securities this is usually on the basis
of ex-dividend dates. For unquoted investments this is usually on the
entitlement date confirmed by the relevant holding. Income from bonds is
accounted for using the effective interest rate method.
Special dividends and distributions described as capital distributions are
assessed on their individual merits and may be credited to the capital reserve
if considered to be closely linked to reconstructions of the investee company
or other capital transactions. Bank interest receivable is accounted for on a
time apportionment basis and is based on the prevailing variable interest
rates for the Company's bank accounts.
(d) Treasury shares
Where the Company purchases its own share capital, the consideration paid,
which includes any directly attributable costs, is recognised as a deduction
from equity shareholders' funds through the Company's reserves. When such
shares are subsequently sold or re-issued to the market any consideration
received, net of any directly attributable incremental transaction costs, is
recognised as an increase in equity shareholders' funds through the share
capital account. Shares held in treasury are excluded from calculations when
determining NAV per share.
(e) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, which include bank
overdrafts, are short term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to insignificant risks of
changes in value, and are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes.
(f) Investment management fees and finance costs
Investment management fees and finance costs are charged to the Statement of
Comprehensive Income as a revenue item and are accrued monthly in arrears.
Finance costs include interest payable and direct loan costs.
Performance-related fees, if any, are payable directly by reference to the
capital performance of the Company and are therefore charged to profit or loss
in the Statement of Comprehensive Income as a capital item.
(g) Financial liabilities
Financial liabilities (including bank loans) are classified according to the
substance of the contractual arrangements entered into. Financial liabilities
held at fair value through profit or loss are measured initially at fair
value, with transaction costs recognised in profit or loss in the Statement of
Comprehensive Income.
(h) Taxation
Investment trusts which have approval under Section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains. The Company has
successfully applied and has been granted approval as an Investment Trust by
HMRC.
Dividend and interest income received by the Company may be subject to
withholding tax imposed in the country of origin. The tax charges shown in
profit or loss in the Statement of Comprehensive Income relate to overseas
withholding tax on dividend income.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred tax assets only being recognised
if it is considered more likely than not that there will be suitable profits
from which the future reversal of the timing differences can be deducted.
Deferred tax assets and liabilities are measured at the rates applicable to
the legal jurisdictions in which they arise.
(i) Operating segments
IFRS 8, 'Operating segments' requires a 'management approach', under which
segment information is presented on the same basis as that used for internal
reporting purposes. The Board, as a whole, has been determined as constituting
the chief operating decision maker of the Company. The Board has considered
the requirements of the standard and is of the view that the Company is
engaged in a single segment of business, which is investing in a portfolio of
companies which give exposure to the Chinese market. The key measure of
performance used by the Board is the NAV of the Company (which is calculated
under IFRS). Therefore, no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the financial
statements.
Further information on the Company's operating segment is provided in note 19.
(j) Offsetting
Financial assets and liabilities are offset and the net amount presented in
the Statement of Financial Position when, and only when, the Company has a
legal right to set off the recognised amounts and it intends to either settle
on a net basis or to realise the asset and settle the liability
simultaneously.
Income and expenses are only presented on a net basis when permitted under
IFRS.
(k) Structured entities
A structured entity is an entity that has been designed so that voting or
similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and
the relevant activities are directed by means of contractual arrangements. A
structured entity often has some or all of the following features or
attributes; (a) restricted activities, (b) a narrow and well-defined
objective, such as to provide investment opportunities for investors by
passing on risks and rewards associated with the assets of the structured
entity to investors, (c) insufficient equity to permit the structured entity
to finance its activities without subordinated financial support and (d)
financing in the form of multiple contractually linked instruments to
investors that create concentrations of credit or other risks.
The Company holds shares, units or partnership interests in the funds or
investment products presented in the Company's portfolio. The Company does not
consider its investments in listed funds to be structured entities but does
consider its investments in unlisted funds to be investments in structured
entities because the voting rights in such entities are limited to
administrative tasks and are not the dominant factor in deciding who controls
those entities.
Changes in fair value of investments, including structured entities, are
included in profit or loss in the Statement of Comprehensive Income.
(l) Dividend payable
Final dividends payable to equity shareholders are recognised in the financial
statements when they have been approved by shareholders and become a liability
of the Company. Interim dividends payable are recognised in the period in
which they are paid. The capital and revenue reserve may be used to fund
dividend distributions.
(m) New standards, interpretations and/or amendments relevant to the Company
Effective in the current financial year
A number of new standards, amendments to standards are effective for the
annual periods beginning after 1 January 2021.
None of these are expected to have a significant effect on the measurement of
the amounts recognised in the financial statements of the Company. The Company
intends to adopt the standards and interpretations in the reporting period
when they become effective and the Board does not anticipate that the adoption
of these standards and interpretations in future periods will materially
impact the Company's financial results in the period of initial application
although there may be revised presentations to the financial statements and
additional disclosures.
Interest Rate Benchmark Reform-Phase 2
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. - The Phase 2
amendments address issues that might affect financial reporting during the
reform of an interest rate benchmark, including the effects of changes to
contractual cash flows or hedging relationships arising from the replacement
of an interest rate benchmark with an alternative benchmark rate
Not yet in effect
There are a number of new standards, interpretations, and/or amendments, which
did not become effective during the financial year under review.
At the date of approval of these financial statements, the following standards
and interpretations were amended during the year:
• IAS 1 and IFRS 2 - Disclosure of Accounting policies (effective 1
January 2023).
• IAS 8 - Definition of Accounting Estimates (effective 1 January
2023).
The Board have assessed new but not yet effective standards applicable to the
Company and have concluded that they will not have a material impact to the
Company.
4. Investments at fair value through profit or loss and classification
of financial instruments
2022 2021
£'000 £'000
Quoted and listed closed end fund investments 222,745 39,890
Open ended fund and limited liability partnership investments 1,319 73,015
Total fair value investments at 31 October 224,064 112,905
Investments held at fair value through profit or loss
Opening book cost 65,600 234,136
Opening investment holding gains 47,305 90,839
Opening fair value 112,905 324,975
Analysis of transactions made during the year
Purchases at cost 446,496 183,626
Sales proceeds received (193,446) (460,134)
Gains on investments 25,119 107,972
Movement in investment holding losses (167,010) (43,534)
Closing fair value 224,064 112,905
Closing book cost 343,770 65,600
Closing investment holding (losses)/gains (119,706) 47,305
Closing fair value 224,064 112,905
The company received £193,446,000 (2021: £460,134,000) from investments sold
during the year. The book cost of these investments when they were purchased
was £168,888,000 (2021: £352,162,000). These investments have been revalued
over time and until they were sold any unrealised gains/losses were included
in the fair value of the investments.
The table below sets out the classifications of the carrying amounts of the
Company's financial assets and financial liabilities into categories of
financial instruments.
Financial instruments as at 31 October 2022
Financial Financial Financial Financial Total
assets assets liabilities liabilities £'000
measured at measured at measured at measured at
fair value amortised cost fair value amortised cost
£'000 £'000 £'000 £'000
Investments at fair value through profit or loss 224,064 - - - 224,064
Cash and cash equivalents - 8,534 - - 8,534
Sales for future settlement and other receivables - 56 - - 56
Purchases for future settlement and other payables - - (811) - (811)
Total 224,064 8,590 (811) - 231,843
Financial instruments as at 31 October 2021
Financial Financial Financial Financial Total
assets assets liabilities liabilities £'000
measured at measured at measured at measured at
fair value amortised cost fair value amortised cost
£'000 £'000 £'000 £'000
Investments at fair value through profit or loss 112,905 - - - 112,905
Cash and cash equivalents - 201,795 - - 201,795
Sales for future settlement and other receivables - 59,957 - - 59,957
Purchases for future settlement and other payables - - (869) - (869)
Total 112,905 261,752 (869) - 373,788
5. Investment income
2022 2021
£'000 £'000
Dividends from UK Investments - 2,824
Dividends from Overseas Investments 4,065 843
Other income 43 -
Total Investment income 4,108 3,667
6. Investment Management fee and other expenses
2022 2021
£'000 £'000
Management fee 1,020 2,753
Administration fees 203 202
Depositary and custody service fees 211 172
Registration fees 31 34
Directors' fees 179 140
Auditor's fees:
Audit services 51 47
Non-audit services 17 17
Promotional fees - 123
Broker fees 76 51
Miscellaneous expenses 145 96
Total other expenses 913 882
Total Investment Management fee and other expenses 1,933 3,635
Management fee (during the year ended 31 October 2021 and up to 9 November
2021)
Management services are provided by abrdn Fund Managers Limited ("AFML").
During the year, the management fee was payable monthly in arrears (and pro
rata for part of any month during which the management agreement is in force)
at an annualised rate of 0.80% of net assets, reduced by the proportion of the
Company's net assets invested in funds which are managed by the abrdn Group
("abrdn Funds"), other than the investments in Aberdeen Standard SICAV I
-China A Share Equity Fund and Aberdeen Standard SICAV I - Frontier Markets
Bond Fund, which are held in share classes not subject to management charges
at a fund level and the Manager was therefore entitled to a fee on the value
of those investments.
Management fee and Agreement (following the Completion of the Scheme of
Reconstruction on 9 November 2021) (the "Scheme")
Following completion of the Scheme, the Company entered into a new management
agreement (the "Management Agreement") with abrdn Fund Managers Limited
("AFML"), pursuant to which the management fee payable by the Company to AFML
is calculated by reference to the market capitalisation of the Company, rather
than its net assets (as was the case). The new management fee is structured on
a tiered basis, with the first £150 million of market capitalisation being
charged at 0.80%, the next £150 million being charged at 0.75%, and amounts
thereafter being charged at 0.65%.
AFML has agreed to make a contribution to the costs of implementing the Scheme
by means of a waiver of the management fee for the first six months following
the completion of the Scheme.
The Management Agreement is terminable by either party on not less than six
months' written notice at any time.
Promotional fee
During the year the Company paid fees of £nil (2021: 123,400) to AFML for the
provision of promotional activities.
Company Secretary and Administrator fees
Vistra Fund Services (Guernsey) Limited ("Vistra") is appointed as
Administrator and Secretary to the Company. Vistra is appointed under a
contract subject to ninety days' written notice and receives a fee at a rate
of £40,000 per annum plus certain additional fees (during the year ended 31
October 2022, Vistra's fee for ad hoc meetings held amounted to £8,250 (2021:
£8,250)). Vistra also receives the fees payable to the UK Administration
Agent.
UK Administration agent fees
Sanne Fund Services (UK) Limited (formerly PraxisIFM Fund Services (UK)
Limited) is appointed by Vistra to act as administration agent in the United
Kingdom. Sanne is appointed under a contract subject to not less than ninety
days' notice. The UK Administration Agent receives from the Administrator a
monthly fee equal to one twelfth of 0.1% of NAV subject to a maximum fee for
the year ended 31 October 2022 of £163,022 (2021: £153,774) per annum. The
maximum fee is increased annually, in November, by the change in the UK Retail
Price Index (all items) over the preceding 12 months.
Depositary and custody services and fees
Northern Trust (Guernsey) Limited, receives fees for Depositary services
calculated at the rate of 2.95 basis points per annum subject to a minimum
annual fee of £20,000, effective 1 August 2018. Northern Trust (Guernsey)
Limited also receives a fee for custody services. It receives an asset based
fee equal to between 1.00 basis points and 60.00 basis points of the value of
the assets of the Company. Transaction based fees are also payable of between
£10 and £140 per transaction. The variable fees are dependent on the
countries in which the individual holdings are registered. The fees for
depositary and custody services payable for the year were £211,000 (2021:
£172,000).
7. Directors' fees
The Director's fees payable for the year were £179,000 (2021: £140,200).
There were no other emoluments paid to the Directors.
8. Transaction charges
2022 2021
£'000 £'000
Transaction costs on purchases of investments 620 137
Transaction costs on sales of investments 212 250
Total transaction costs included in gains on investments 832 387
9. Bank loan payable and finance costs
In April 2022, the Company entered into an unsecured multicurrency revolving
loan facility with ICBC. The facility will be utilised for general working
capital purposes and for the acquisition of investments in accordance with the
Company's investment policy.
Under the terms of the facility, the Company also has the option to increase
the level of the commitment from £15 million to £30 million at any time,
subject to the Lender's credit approval. There was no drawdown as at the year
end. On 15 December 2022, the Company utilised CNH 40,000,000 (£4.67 million)
of its unsecured multicurrency revolving loan facility.
Bank loan 2022 2021
£'000 £'000
Opening balance - 12,500
Proceeds from bank borrowings (drawdowns) - 12,500
Repayment of bank borrowings (repayments) - (25,000)
Closing balance - -
Finance costs 2022 2021
£'000 £'000
Interest payable 70 151
Facility arrangement fees and other charges 39 25
Total finance costs 109 176
At 31 October 2022, Finance costs payable of £nil (2021: £34,000) was
accrued in the Statement of Financial Position.
10. Basic earnings and diluted earnings per Ordinary share
Basic earnings and diluted earnings per Ordinary share is based on the total
comprehensive income for the year ended 31 October 2022, being a loss of
£140,954,000 (2021: profit of £64,156,000) attributable to the weighted
average of 46,260,167 (2021: 45,965,159) Ordinary shares in issue (excluding
shares held in treasury) during the period ended 31 October 2022.
Supplementary information is provided as follows: revenue per share is based
on the net revenue profit of £1,851,000 (2021: revenue loss of £282,000) and
capital earnings per share is based on the net capital loss of £142,805,000
(2021: profit of £64,438,000) attributable to the above Ordinary shares.
11. Dividends paid
There were no dividends paid or declared during the year ended 31 October
2022. The Board declares an interim dividend in respect of the year ended 31
October 2022 of 3.2p per Ordinary share which will be payable to Shareholders
on 17 March 2023, with a record date of 24 February 2023 and ex-dividend date
of 23 February 2023.
Dividends paid during the year ended 31 October 2021
Dividend type (in respect of the year) - Pay date Pence per £'000
Ordinary
share
Fourth interim (2020) - paid 18 December 2020 5.50 2,528
First interim (2021) - paid 26 March 2021 5.75 2,643
Second interim (2021) - paid 25 June 2021 5.75 2,643
Third interim (2021) - paid 24 September 2021 5.75 2,643
Total dividends 22.75 10,457
12. Share capital
For the year ended Authorised Ordinary shares of Allotted, Ordinary shares with Treasury
31 October 2022 1 p nominal value issued and voting rights (excluding shares
£'000 fully paid treasury shares)
Opening number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Scheme of reconstruction
Ordinary shares issued 76 7,554,440 7,554,440 -
Ordinary shares repurchased - - (6,894,773) 6,894,773
Purchase of own shares - - (1,341,251) 1,341,251
Closing number of shares Unlimited 622 62,172,947 45,283,575 16,889,372
For the year ended Authorised Ordinary shares of Allotted, Ordinary shares with Treasury
31 October 2021 1 p nominal value issued and voting rights (excluding shares
£'000 fully paid treasury shares)
Opening number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Purchase of own shares - - - -
Closing number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Scheme of Reconstruction
On 9 November 2021 the Company completed and announced its Scheme of
Reconstruction (the "Scheme"). As a result of the Scheme, the change in share
capital of the Company was as follows:
• Share issue - The Company acquired approximately £62 million of net
assets from New Thai in consideration for the issue of 7,554,440 new Ordinary
shares in the Company.
• Tender Offer - A total of 6,894,773 Ordinary shares were repurchased
by the Company on 10 November 2021 under the Tender Offer and held in treasury
at an aggregate cost to the Company of £55 million.
The cost of implementing the Scheme paid during the year was £177,000 (2021:
£881,000).
Purchases of own shares
There were 1,341,251 Ordinary shares purchased during the year (2021: none)).
Share capital account
The aggregate balance (including share premium) standing to the credit of the
share capital account as at 31 October 2022 was £147,444,000 (2021:
£148,735,000).
Ordinary shares
Voting rights (as at 31 October 2022)
Holders of Ordinary shares are entitled to attend, speak and vote at general
meetings of the Company. Each Ordinary share (excluding shares in treasury)
carries one vote. Treasury shares do not carry voting rights.
At its financial year end, the Company had 386 registered shareholders. At 31
October 2022, the Company was notified of 3 shareholders who each held more
than 10% of the issued share capital and their holdings were 27.8% (2021:
28.7%), 23.5% (2021: 22.1%) and 19.5% (2021: 21.8%) respectively.
Dividends
The holders of Ordinary shares are entitled to such dividend as may be
declared by the Company from time to time. Shares held in treasury do not
receive dividends.
Capital entitlement
On a winding up, the Ordinary shares (excluding treasury shares) shall rank
pari passu for the nominal capital paid up thereon and in respect of any
surplus. Shares held in treasury have no capital entitlement on a winding up
of the Company.
13. Capital reserve
2022 2021
£'000 £'000
Realised gains on investments and other capital reserve movements
Opening balance 183,241 85,726
Dividends paid from capital reserves - (10,457)
Gains from disposal of investments* 45,085 114,954
Losses from disposal of investments* (20,527) (6,982)
Foreign exchange losses (354) -
Balance at 31 October 207,445 183,241
Investments held
Opening balance 47,303 90,837
Movement in unrealised gain on revaluation of investments held* 1,454 27,661
Movement in unrealised loss on revaluation of investments held* (168,463) (71,195)
Balance at 31 October (119,706) 47,303
Capital reserve balance at 31 October 87,739 230,544
* Net gains on investments held at fair value through profit or loss figure
for the year ended 31 October 2022 totalled £141,891,000 (2021:
£64,438,000).
14. Net asset value ("NAV") per Ordinary share
The NAV per Ordinary share is based on net assets of £231,843,000 (2021:
£373,788,000) divided by 45,283,575 (2021: 45,965,159) Ordinary shares in
issue (excluding shares held in treasury) at the year end.
The table below is a reconciliation between the NAV per Ordinary share as
announced on the London Stock Exchange and the NAV per Ordinary share
disclosed in these financial statements.
As at As at
31 October 2022 31 October 2021
Net assets NAV per Net assets NAV per
(£'millions) Ordinary (£'millions) Ordinary
share (p) share (p)
NAV as published on 1 November 2022 and 1 November 2021 respectively 231.8 511.98 373.7 813.09
Revaluation adjustments - delayed prices - - 0.1 0.11
NAV as disclosed in these financial statements 231.8 511.98 373.8 813.20
15. Reconciliation of operating profit to net cash flow from operating
activities
2022 2021
£'000 £'000
Operating profit before finance costs and taxation (140,630) 64,470
Less: Tax deducted at source on income from investments (215) (138)
Add: Realisation of investments at book cost 168,327 352,162
Less: Purchase of investments (446,496) (183,626)
Less: Adjustment for unrealised losses / (gains) 167,011 43,534
Less: Adjustment for accrued (Scheme of reconstruction) - (212)
Effect of foreign exchange 354 -
Increase in trade receivables 59,889 (58,666)
(Decrease)/increase in trade payables (49) (276)
Net cash flow from operating activities (191,809) 217,248
16. Related party disclosures
Manager
Management fees payable are shown in the Statement of Comprehensive Income and
note 6. As at 31 October 2022, management fees of £291,000 (2021: £472,000)
were accrued in the Statement of Financial Position. Total management fees for
the year were £1,020,000 (2021: £2,753,000).
Details of promotional fees payable can be found in note 6. The balance
outstanding at the financial year end was £nil (2021: £41,000).
Investments held by the Company which are managed by the abrdn plc Group
As at 31 October 2022, the Company held the following investments managed by
the abrdn Group;
As at As at
31 October 2022 31 October 2021
£'000 £'000
Aberdeen Standard SICAV I - China A Share Equity Fund - 21,874
abrdn New India Investment Trust PLC - 10,826
abrdn Asian Income Fund Limited - 6,215
Aberdeen Standard SICAV I - Frontier Markets Bond Fund - -
Asia Dragon Trust PLC - -
Total - 38,915
Directors
Total fees for the Directors in the year ended 31 October 2022 were £179,000
(2021: £140,200). There were no outstanding fees due to the Directors at the
year end (2021: £nil). Details of Directors' share holdings in the Company
can be found in the Annual Report for the Financial Year ended 31 October
2022.
17. Financial instruments - risk profile
Risk Management Framework
The Company has established procedures to enable it to manage its financial
risks. The main financial risks faced from its financial instruments are
market risk, liquidity risk and credit risk, which are discussed as follows.
Market risk
i) Risks associated with Chinese and emerging markets
Investment in certain emerging securities markets, including China, may
involve a greater degree of risk than that associated with investment in more
developed securities markets. In particular, in certain countries in which the
Company is proposing to invest:
• liquidity and settlement risks may be greater;
• accounting standards may not provide the same degree of shareholder
protection as would generally apply internationally;
• national policies may restrict the investment opportunities
available to foreign investors, including restrictions on investing in issuers
or industries deemed sensitive to relevant national interests; ·
• the fiscal and monetary systems remain relatively undeveloped and
this may affect the stability of the economic and financial markets of those
countries;
• substantial limitations may exist with respect to the Company's
ability to repatriate investment income, capital or the proceeds of sales of
securities by foreign investors; and
• assets may be subject to increased political and/or regulatory risk.
The day to day management of the market risks is the responsibility of the
Investment Manager, which analyses markets within a framework of quality,
value, growth and change. The Board believes the Investment Manager utilises
its proven research and management selection experience to ensure that these
risks are minimised, as far as is possible. The investment policy employed by
the Investment Manager ensures that diversification within investee funds is
taken into account when deciding on the size of each investment so the
Company's exposure to any one underlying company should never be excessive.
The Company's market positions are monitored by the Board in the monthly
portfolio valuations and at Board meetings.
ii) Currency risk
As stated under i) above, the Company invests in Chinese markets. It is
therefore exposed to currency risks which affect both the performance of its
investee funds and also the value of the Company's holdings against the
Company's functional currency, sterling. The Company holds sterling and
occasionally other foreign currencies for brief periods in its account with
the custodian, but only at times when it expects to invest that currency into
portfolio holdings shortly after.
It is not the Company's policy to hedge against foreign currency movements,
nor does the Company use financial instruments to mitigate the currency
exposure in the period between the time that income is included in the
financial statements and its receipt. Movements in exchange rates are likely
to affect directly and indirectly the value of the Company's investments.
Currency price risk sensitivity
The effect of a 1% appreciation/depreciation in the exchange rate of the
Chinese Yuan over sterling would have resulted in an increase/decrease of
£156,000 (2021: £nil) in the Company's investments held at fair value
through profit or loss at the Statement of Financial Position date. This
analysis assumes that all other variables remain constant.
iii) Interest rate risk
No significant interest rate risks arise in respect of any current asset. The
Company, generally, does not hold significant cash balances, with short-term
borrowings being used when required. All cash held as a current asset is
sterling or US dollar.
In April 2022, the Company entered into an unsecured multicurrency revolving
loan facility with ICBC. The facility will be utilised for general working
capital purposes and for the acquisition of investments in accordance with the
Company's investment policy.
Under the terms of the facility, the Company also has the option to increase
the level of the commitment from £15 million to £30 million at any time,
subject to the Lender's credit approval. There was no drawdown as at the year
end. On 15 December 2022, the Company utilised CNH 40,000,000 (£4.67 million)
of its unsecured multicurrency revolving loan facility.
Movements in interest rates are likely to indirectly affect the value of the
Company's investments.
Interest rate risk sensitivity
Movements in interest rates are likely to directly affect bank loan interest
payments and commitment fees and are likely to indirectly affect the value of
the Company's investments, both of which are not likely to affect the
Company's net assets to a material extent. However, it is not possible to give
an accurate assessment of how significant changes in interest rates would
affect the prices of equity investments held by the Company.
Quantitative analysis
A breakdown of the pricing denominations of the funds in which the Company is
invested is shown below.
The Company's financial assets and liabilities as at 31 October comprised:
As at 31 October 2022 As at 31 October 2021
Cash flow Non Total % of net Cash flow No Total % of net
Interest interest £'000 assets Interest interest £'000 assets
rate risk rate risk rate risk rate risk
£'000 £'000 £'000 £'000
Non-current asset investments at fair value:
EUR denominated - - - - - - - -
GBP denominated - - - - - 32,584 32,584 8.7
HKD denominated - 91,289 91,289 39.4 - - - -
CNY denominated - 131,456 131,456 56.7 - - - -
USD denominated - 1,319 1,319 0.6 - 80,321 80,321 21.5
Cash and cash equivalents
GBP* 8,496 - 8,496 3.7 - 182,718 182,718 48.9
HKD 28 - 28 - - - - -
CNY 6 - 6 - - - - -
USD* 4 - 4 - - 19,077 19,077 5.1
Short term receivables - 56 56 - - 59,957 59,957 16.0
Short term payables (25) (786) (811) (0.4) (34) (835) (869) (0.2)
8,509 223,334 231,843 100.0 (34) 373,822 373,788 100.0
* Cash held at the custodian is in a 0% interest bearing account
iv) Other price risks
The principal price risk for the Company is the price volatility on the
investment portfolio. The Investment Manager attempts to diversify the price
risk by spreading the Company's investments across a number of economic
sectors. The Board meets regularly to review the Investment Manager's
performance and the asset allocation.
Market price risk sensitivity
The effect on the portfolio of a 10% increase or decrease in market prices
would have resulted in an increase or decrease of £22,406,400 (2021:
£11,290,500) in the investments designated as fair value through profit or
loss at the Statement of Financial Position date, equivalent to 10.0% (2021:
3.0%) of the net assets attributable to equity holders. This analysis assumes
that all other variables remain constant.
Liquidity risks
A large portion of the Company's investments are in quoted securities. A high
percentage of securities are listed on the Chinese, London or New York Stock
Exchanges and are considered to be readily realisable by comparison with most
emerging market securities. The Company also holds unquoted investments, which
are predominantly in open-ended funds. The Company has made application to
fully redeem its investments in unquoted and open-ended investments. Some
delay may be encountered in obtaining liquidity in respect of these
securities; the Company may utilise its borrowing powers on a short-term basis
to avoid delays in reinvestment of the proceeds of redemptions.
The Investment Manager has estimated the percentages of the portfolio that
could be liquidated within various timescales, assuming one third of daily
trading volumes. The results are shown below.
Liquidation Period 2022 2021*
(%) (%)
One month 99.5 39.7
Three months 99.5 78.3
One year 99.5 95.9
The analysis above supports the Company's ability to repay borrowings,
considering the Company is permitted to borrow, at the point of borrowing, up
to 15% of its net assets compared to the Company's ability to realise an
estimated 99% of its portfolio within one month.
The Company had £222,000 (2021: £nil) purchase transactions and £nil (2021:
£59,838,000) sales transactions awaiting settlement at the year end.
The liquidity of the underlying holdings in the funds in which the Company is
invested may have an impact on the ability of the Company to realise its
holdings in those funds.
Credit risks
The Company's principal direct credit risk is the risk of default on cash held
at the custodian. Cash at bank at 31 October 2022 included £8,534,000 (2021:
£201,795,000) held by the custodian, Northern Trust (Guernsey) Limited. The
Company monitors the credit quality of the custodian. Interest is based on the
prevailing money market rates.
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to
be low as trading is almost always done on a delivery versus payment basis.
When investments are made in open-ended funds, the Investment Manager performs
due diligence on those funds before making any investment.
All of the assets of the Company are held by the custodian or through the
custodian's nominated sub custodians. Bankruptcy or insolvency of the
Company's custodian, Northern Trust (Guernsey) Limited, or its sub custodians
may cause the Company's rights with respect to securities held by them to be
delayed or limited. The latest credit ratings at the time of approval of this
document for Northern Trust (Guernsey) Limited's parent company, The Northern
Trust Company, were as follows:
Standard & Poor's Moody's Fitch Ratings
Short-term/deposit A-1+ P-1 F1+
Long-term/deposit AA- Aa2 AA
The Company's investments may be exposed to credit risk.
Capital management
The Company considers that its capital consists of its net assets.
The Company's authorised share capital consists of an unlimited number of
Ordinary shares of £0.01 par value. At 31 October 2022, there were
45,283,575 (2021: 45,965,159) Ordinary shares in issue (excluding shares held
in treasury).
The Manager and the Company's brokers monitor the demand for the Company's
shares and the Directors review the position at Board meetings. Details on the
Company's policies for issuing further shares and buying back shares can be
found in the Directors' Report.
In April 2022, the Company entered into an unsecured multicurrency revolving
loan facility with ICBC. The facility will be utilised for general working
capital purposes and for the acquisition of investments in accordance with the
Company's investment policy.
Under the terms of the facility, the Company also has the option to increase
the level of the commitment from £15 million to £30 million at any time,
subject to the Lender's credit approval. There was no drawdown as at the year
end. On 15 December 2022, the Company utilised CNH 40,000,000 (£4.67 million)
of its unsecured multicurrency revolving loan facility.
Restrictions imposed by ICBC in connection with the loan facility include the
following financial covenants.
The Company shall ensure that:
• Total borrowings do not exceed 20% if the total assets at any time.
·
• Its NAV shall at all times be a minimum of £200,000,000; and
• The aggregate value of the unlisted investments does not exceed 10%
of the aggregate value of the investments at any time.
The Company does not have any externally imposed capital requirements other
than disclosed above.
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide
variety of causes associated with the processes, technology and infrastructure
supporting the Company's activities with financial instruments either
internally within the Company or externally at the Company's service
providers, and from external factors other than credit, market and liquidity
risks such as those arising from legal and regulatory requirements and
generally accepted standards of investment management behaviour.
The Company's objective is to manage operational risk so as to balance
limiting of financial losses and damage to its reputation with achieving its
investment objective of generating returns to investors.
The primary responsibility for the development and implementation of controls
over operational risk rests with the Board of Directors. This responsibility
is supported by the development of overall standards for the management of
operational risk, which encompasses the controls and processes at the service
providers and the establishment of service levels with the service providers,
in the following areas:
• requirements for appropriate segregation of duties between various
functions, roles and responsibilities; ·
• requirements for the reconciliation and monitoring of transactions;
·
• compliance with regulatory and other legal requirements; ·
• documentation of controls and procedures;
• requirements for the periodic assessment of operational risk faced,
and the adequacy of controls and procedures to address the risks identified;
• contingency plans;
• ethical business standards;
• insurance; and
• risk mitigation.
The Directors' assessment over the adequacy of the controls and processes in
place at the service providers with respect to operational risk is carried out
via regular discussions with the main service providers to the Company and a
review of their internal controls documents prepared under industry recognised
guidance, if available.
18. Valuation of financial instruments
The Company's financial assets and liabilities held at fair value through
profit or loss are valued at fair value in accordance with the provisions of
IFRS as described in note 2 (g).
The classification of the Company's investments held at fair value is detailed
in the table below:
31 October 2022 31 October 2021
£'000 £'000
Level 1 222,745 69,419
Level 2 - 42,128
Level 3 1,319 1,358
Total 224,064 112,905
The Company recognises transfers between levels of fair value hierarchy at the
date the change occurred.
There were no investments transferred between levels during the year (2021: no
investments transferred between levels during the year).
Level 1 classification basis
Investments, whose values are based on quoted market prices in active markets,
and therefore classified within level 1, include listed equities in active
markets. The Company does not adjust the quoted price for these instruments.
Level 2 classification basis
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs are classified within level 2. These
include monthly priced investment funds. The underlying net asset values of
the open ended funds included under level 2 are prepared using industry
accepted standards and the funds have a history of accepting and redeeming
funds on a regular basis at net asset value. The net asset values of regularly
traded open ended funds are considered to be reasonable estimates of the fair
values of those investments and such investments are therefore classified
within level 2 if they do not meet the criteria for inclusion in level 1.
Level 3 classification basis
Investments classified within level 3 have significant unobservable inputs, as
they trade infrequently. The level 3 figure consists of an investment in
Komodo Fund which is valued at the unadjusted net asset values provided by the
administrator of that fund.
The movement on the level 3 classified investments during the year is shown
below:
2022 2021
£'000 £'000
Opening balance 1,358 2,129
Additions during the year - -
Disposals during the year - -
Profit or loss on disposals during the year - -
Transfer of investment from level 2 to level 3 - -
Valuation adjustments* (39) (771)
Closing balance at 31 October 1,319 1,358
* Total gains/(losses) included in profit or loss on assets held at year end.
Level 3 classified investments sensitivity analysis
If the fair value of level 3 classified investments changed by 5%, the impact
on the Company's net assets attributable to equity holders would be 0.03%
(2021: 0.01%). As at 31 October 2022, the Company's net assets attributable to
equity holders would be adversely affected by a maximum of 0.6% (2021: 0.3%)
if level 3 classified investments were written off to £nil.
Structured entities
The Company had invested in a portfolio of funds and products which gave
diversified exposure to developing and emerging market economies. The Company
does not consider those investments in listed funds to be structured entities
but does consider those investments in unlisted funds to be investments in
structured entities because the voting rights in such entities are limited to
administrative tasks and are not the dominant factor in deciding who controls
those entities.
The investments in structured entities are subject to the terms and conditions
of offering documents and/or constitutional documents. These investments are
subject to market price and other risks arising from their underlying
portfolios. Investee funds are managed by portfolio managers who are
compensated by the respective funds for their services. Such compensation
generally may consist of an asset based fee and/or a performance based fee.
The investments in structured entities are financial assets which are
designated as fair value through profit or loss in the Company's financial
statements. During the year ended 31 October 2022, the Fund did not provide
financial support to unconsolidated structured entities and has no intention
of providing financial or other support.
The exposure to investments in investee funds and products at fair value by
strategy employed is disclosed in the following table.
2022
Strategy Number of Fair value Weighted average Investment % of total
investee range fair value at fair value net assets of
funds £'000 £'000 £'000 underlying funds
Equity long-only 1 1,319 1,319 1,319 0.6%
2021
Strategy Number of Fair value Weighted average Investment % of total
investee range fair value at fair value net assets of
funds £'000 £'000 £'000 underlying funds
Equity long-only 5 1,358 - 16,282 13,081 51,141 45.3%
Equity long-only
Portfolio managers implementing equity long-only strategies generally take
long positions in equity related instruments such as ordinary shares,
preferred shares, convertible bonds, depositary receipts, exchange traded
funds and market access products such as index futures with the expectation
that the asset will rise in value.
19. Operating segments
The Board of Directors is responsible for ensuring that the Company's
objective and investment strategy is followed. The Company's objective is to
produce long-term capital growth by investing predominantly in Chinese
equities across a number
of economic sectors. The day-to-day operation of the investment strategy has
been delegated to the Investment Manager but the Board retains responsibility
for the overall direction of the Company. The Board reviews the investment
decisions of the Investment Manager at regular Board meetings to ensure
compliance with the investment strategy and to assess the achievement of the
Company's objective. The Investment Manager has been given full authority to
make investment decisions on behalf of the Company in accordance with the
investment strategy and analyses markets within a framework of quality, value,
growth and change. The investment policy employed by the Investment Manager
ensures that diversification within investee funds is taken into account when
deciding on the size of each investment so the Company's exposure to any one
underlying company should never be excessive. The Company's positions are
monitored as a whole by the Board in monthly portfolio valuations and at Board
meetings. Any significant change to the Company's investment strategy requires
shareholder approval.
No single investment accounted for more than 7.0% (2021: 5.8%) of the
Company's net assets at the Company's year end. The Investment Manager aims to
identify funds which it considers are likely to deliver consistent capital
growth over the longer term.
20. Post balance sheet events
Change of Company Secretary, Administrator, Depositary and Custodian
Following the end of the Financial Year, the Company has signed agreements
with abrdn plc and various entities within BNP Paribas S.A. ("BNPP") to take
on the various functions in due course. BNPP will become the Company's
administrator and provide custody and depositary services. abrdn will take on
Company Secretarial responsibilities.
Purchase of own shares
In addition to the Scheme mentioned above, since the year ended 31 October
2022, the Company has purchased 1,268,709 of its own Ordinary shares and held
them in Treasury.
Loan facility draw down
Since the financial year ended the Investment Manager has drawn down a total
of CNH 106m (£12.7m) in two tranches.
Interim dividend declaration in respect of the year ended 31 October 2022
Ensuring that the Company retains its investment trust status, the Board
declares an interim dividend in respect of the year ended 31 October 2022 of
3.2p per Ordinary share which will be payable to Shareholders on 17 March 2023
with an associated ex-dividend date of 23 February 2023.
21. Taxation
(a) Analysis of charge :
Year ended 31 October 2022
Revenue Capital Total
£'000 £'000 £'000
Withholding tax expense 215 - 215
Total tax charge for the year 215 - 215
(b) Factors affecting the tax charge for the year:
The effective UK corporation tax rate for the year is 19% . The tax charge
differs from the charge resulting from applying the standard rate of UK
corporation tax for an investment trust company. The differences are explained
below:
Year ended 31 October 2022
Revenue Capital Total
£'000 £'000 £'000
Operating profit before taxation 2,066 (142,805) (140,739)
UK Corporation tax at 19% 393 (27,133) (26,740)
Effects of:
Withholding tax expense 215 - 215
UK dividends not taxable (769) - (769)
Capital gains/(losses) not subject to tax - 27,133 27,133
Overseas dividends not taxable (3) - (3)
Other Income not taxable (8) - (8)
Finance costs not tax deductible 21 - 21
Movement in unutilised management expenses 366 - 366
Total tax charge 215 - 215
No deffered tax asset has been recognised in the accounts because, given the
composition of the Company's portfolio, it is unlikely that a deffered tax
asset will be utilised in the foreseeable future. The Company has not provided
for deferred tax on any tax losses.
ACIC received approval by HMRC to be classified as an investment trust under
Chapter 4 of Part 24 CTA 2010 and Chapter 1 of Part 2 of The Investment Trust
Tax Regulations. As a result, the Company became an investment trust with
effect from 9 November 2021 and is registered in the United Kingdom for tax
purposes from that date. No tax computation is required in respect of the
prior year ended 31 October 2021.
Alternative Performance Measures ("APMs") (unaudited)
Discount
The amount, expressed as a percentage, by which the share price is less than
the NAV per Ordinary share.
As at As at
31 October 2022
31 October 2021
NAV per Ordinary share (pence) a 511.98 813.20
Ordinary share price (pence) b 448.00 695.00
Discount 1-(b÷a) 12.5% 14.5%
Gearing
The net gearing ratio is calculated by dividing total borrowings less net
liquid cash by Shareholders' funds and expressing the result as a percentage.
Under AIC reporting guidance cash and cash equivalents includes the value of
purchases and sales for future settlement at the period end as well as cash.
As at As at
31 October 2022
31 October 2021
£'000
£'000
Total borrowings a - -
Cash and bank 8,534 201,795
Sales for future settlement - 59,838
Purchases for future settlement -222 -
Cash and cash equivalents b 8,312 261,633
Gearing (borrowings less cash and cash equivalents) c=(a-b) -8,312 -261,633
Shareholders' funds d 231,843 373,788
Net (cash) / gearing c/d -3.60% -70.00%
Leverage
Under the Alternative Investment Fund Managers Directive ("AIFMD"), leverage
is any method by which the exposure of an Alternative Investment Fund ("AIF")
is increased through borrowing of cash or securities or leverage embedded in
derivative positions.
Under AIFMD, leverage is broadly similar to gearing, but is expressed as a
ratio between the assets (excluding borrowings) and the net assets (after
taking account of borrowing). Under the gross method, exposure represents the
sum of the Company's positions after deduction of cash balances, without
taking account of any hedging or netting arrangements. Under the commitment
method, exposure is calculated without the deduction of cash balances and
after certain hedging and netting positions are offset against each other.
Further details on the Company's leverage is provided in the Annual Report for
the Financial Year ended 31 October 2022.
Ongoing charges
A measure, expressed as a percentage of average NAV, of the regular, recurring
annual costs of running an investment company.
As at As at
31 October 2022
31 October 2021
Average NAV (£'000) a 319,519 372,698
Annualised expenses* (£'000) b 1,933 3,635
Ongoing charges b÷a 0.60% 0.98%
*100% of the Company's portfolio is held in other funds. The Company's ongoing
charges figure does not reflect any costs of the underlying funds as the
underlying information is not readily available.
Total return
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into its Ordinary shares on the ex-dividend date.
Year ended 31 October 2022 Ordinary NAV
share price
Opening at 1 November 2021 (pence) a 695.00 813.20
Closing at 31 October 2022 (pence) b 448.00 511.98
Share price/NAV movement (b ÷ a) - 1 c -35.5% -37.0%
Dividend reinvestment d 0.0% 0.0%
Total return (c+d) -35.5% -37.0%
n/a = not applicable
Year ended 31 October 2021 Ordinary NAV
share price
Opening at 1 November 2020 (pence) a 605.00 698.29
Closing at 31 October 2021 (pence) b 695.00 813.20
Share price/NAV movement (b ÷ a) - 1 c 14.9% 16.5%
Dividend reinvestment d 3.8% 3.3%
Total return (c+d) 18.7% 19.8%
n/a = not applicable
Additional Notes to the Annual Financial Report
The Annual General Meeting will be held at Wallacespace Spitalfields, 15-25
Artillery Lane, London, E1 7HA at 12 noon on 13 April 2023.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 October 2022 have been
agreed with the auditor and are an abridged version of the Company's full
accounts, which have been approved and audited with an unqualified report. The
2021 and 2022 statutory accounts received unqualified reports from the
Company's auditor and did not include any reference to matters to which the
auditor drew attention by way of emphasis without qualifying the reports, and
did not contain a statement under s.498(2) or 498(3) of the Companies Act
2006. The financial information for 2021 is derived from the statutory
accounts for 2021 which have been delivered to the Registrar of Companies. The
2022 accounts will be filed with the Registrar of Companies in due course.
The Annual Report and Accounts will be posted to shareholders in February
2023. Copies will be available during normal business hours from the
Secretary, Vistra Fund Services (Guernsey) Limited, 11 New Street, St Peter
Port, Guernsey GY1 2PF or from the Company's website, www.abrdnchina.com
(http://www.abrdnchina.com) . It will also be submitted to the National
Storage Mechanism where it will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise and may be affected by exchange rate movements. Investors may not get
back the amount they originally invested.
By order of the Board
Vistra Fund Services (Guernsey) Limited
Company Secretary
13 February 2023
Aberdeen Standard Fund Managers Limited will be hosting an Online Shareholder
Presentation, which will be held at 10.00am on 30 March 2023. Full details on
how to register for the online event can be found at:
https://bit.ly/abrdn-China-webinar (https://bit.ly/abrdn-China-webinar)
Enquiries:
abrdn Fund Managers Limited (Alternative Investment Fund Manager to the
Company)
Evan Bruce-Gardyne Tel: +44 (0)7720 073216
Shore Capital Markets Limited (Financial adviser and stockbroker)
Robert Finlay Tel: +44 (0)777
176 5675
Ordinary Shares - Listing Category: Premium - Equity Closed-ended Investment
Funds
* Neither the content of the Company's website nor the content of any website
accessible from hyperlinks on the Company's website (or any other website) is
(or is deemed to be) incorporated into, or forms (or is deemed to form) part
of this announcement.
13 February 2023
END
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